Inheritance tax receipts jumped by £700m ($922.8m) to £5.5bn between April 2021 and February 2022 as frozen thresholds brought more estates into scope due to rising property values.
HMRC said this increase is likely in part due to the higher number of wealth transfers that took place during this tax year, itself the result of higher-than-usual deaths due to COVID-19.
Receipts were higher in October and November 2020, and between March and August last year.
Julia Rosenbloom, tax partner at Tilney Smith & Williamson, said inheritance (IHT) tax receipts are the “gift that keeps giving” for the Treasury.
“IHT tax receipts are the gift that keeps on giving for the Treasury as they show yet another year-on-year rise. While the revenue will prove useful to the government to help pay for its ambitious spending programme, this latest update from HMRC should be a wake-up call for families to think carefully about their tax planning.
“The outlook for personal taxes for the coming years is far from certain. However, even without any changes to the way IHT is taxed, many people can still expect to see increased IHT bills given both the nil rate band and residence nil rate band have been frozen until at least April 2026. This is bringing more estates into scope, not least because of rising property values."
Shaun Moore, tax and financial planning expert at Quilter, said IHT is no longer a tax on the wealthy.
“These ever-increasing figures demonstrate that the government are gradually increasing tax revenues without significantly increasing the burden on taxpayers,” he said.
“However, IHT was once viewed as a tax on wealthier individuals, but due to runaway house prices more people are getting caught by the tax and many people who would not consider themselves wealthy will now face a hefty IHT bill.
“This is well reflected in the fact that London and the south east have the most amount of estates paying IHT, which is due to the above average house prices in the region."
Moore added: “The government are stuck between a rock and a hard place at the moment as they continue to have to cope with the significant debt it took on to cope with the pandemic but also now has the unenviable job of needing to help alleviate a cost-of-living crisis. Clawing back inheritance tax might seem like a good opportunity to refill the public coffers at this difficult time.
Stephen Lowe, group communications director at retirement specialist Just Group, said strong rises in house prices — the average UK asking price was over £350,000 in March— were likely to push many estates over the inheritance tax threshold.
A Freedom of Information (FOI) request by Just Group found that although the average value of estates liable for inheritance tax in 2018-19 does not vary much by region, the components of those estates is very different.
In areas such as London and the east of England property a much bigger proportion of the estate and relatively low amounts of cash and securities are left compared to other areas which may require a very different approach to estate planning.
“IHT receipts rose in 2021, partly due to higher death rates during the pandemic but gains in house prices approaching 10% a year will also push more estates above the exempt thresholds," Lowe said.
“Across the country, IHT is paid on about one in 25 estates but the numbers of estates paying the tax is higher where home prices are higher, most obviously in London and the south east.
"Although property sales numbers have fallen overall, the number of properties selling for more than £500,000 has increased and now makes up 17% of all sales in England and Wales in 2021 compared to 11% just two years earlier."