Thousands of UK households will be 'dragged in' to paying HMRC charge

Thousands of UK households are being "dragged" into paying a HMRC charge. Inheritance tax receipts have risen by 16 per cent with UK households up and down the country warned they could be hit by the charge to the government tax department.

It is charged at a rate of 40 per cent on estates which cost more than the £325,000 threshold. Laura Hayward, a tax partner at Evelyn Partners, warned people up and down the country are at risk of being unware of their liability to pay inheritance tax.

She explained: "Even if a new Government is shy of making transparent and potentially unpopular decisions to tax the passing on of wealth more harshly, then fiscal drag is doing a similar job behind the scenes anyway. With both property and financial market assets continuing to surge in value, there is no prospect of the trend abating for more estates, and more assets in each liable estate, being dragged over the frozen thresholds at which IHT kicks in."

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Hayward added: "The haul for the Treasury from IHT is likely to escalate in the coming years due to a particular demographic bump. As the wealthy baby boomer generation dies off in the next couple of decades, there will be a massive transfer of wealth. Research shows that the older generations have as much as £2.6trillion of equity tied up in their homes.”

Alastair Black, head of savings policy at abrdn, said: “A frozen IHT nil rate band, combined with rising asset values, continues to draw more people into the IHT net. Comment on plans for IHT have been conspicuously absent from manifestos. What was originally a tax targeted at the super rich has become mainstream.

"Much like the other taxes, consumers need a degree of certainty and this needs to be addressed. And, while we’re at it, it’s imperative we look at simplifying the regime too. We’re in the midst of the Great Wealth Transfer, where as much as £5.5 trillion in assets are set to be passed between generations between now and 2050. A regime which encourages and facilitates this surely has to be good for UK growth.

"In the meantime, it remains critical that people are taking the time to consider how they want to pass on their wealth in the most effective and efficient manner – advisors have a real opportunity to once again show their value here. This might include gifting, or funding a pension.”