Inheritance tax bills top £500k for one in 10 families
Of the 27,850 estates who paid the death levy in 2021-22, the latest year for which data is available, 1,630 paid more than £500,000.
A further 890 paid more than £1m in inheritance tax, according to figures obtained by wealth firm, Rathbones, under Freedom of Information rules.
This represented a 29pc increase in the number of estates paying that much in three years.
If the upwards trend continues, more than 3,500 estates could pay over £500,000 in inheritance tax this year, analysis found.
Experts blamed the increase on rising house prices, but said that an upcoming raid on unspent pension pots would see more estates paying larger sums.
It comes as talk of a wealth tax ramps up once again. Ahead of a looming Budget in which Rachel Reeves, the Chancellor, faces tough choices – including whether to charge a capital gains levy on death – more families are using exemptions, advisers told The Telegraph.
Inheritance tax is paid at a rate of 40pc on anything over the nil-rate threshold of £325,000. Families can also benefit from other allowances, including a £175,000 exemption on a main property.
Gifts made more than seven years before death are exempt, as are those which are made habitually out of excess income.
In last year's October Budget, Ms Reeves announced that private pensions, previously exempt from the levy, would be considered part of a person's estate, and therefore liable for inheritance tax from 2027.
This will increase the number of estates liable for death duties by almost a quarter, analysis found. In October, the Government admitted that it would pull more estates into paying inheritance tax, and that estates would pay more.
Campaigners criticised the Chancellor for the 'cruel' blow to bereaved families that will 'wreak havoc on finances'.
Lucy Woodward, of tax firm Saffery LLP, said: 'It is probably no surprise that inheritance tax is going up given the nil-rate band has been frozen since 2009.'
The £325,000 nil-rate band, which was set in 2009, would be £519,695 today, if it had risen with inflation.
Ms Woodward added: 'However, clients I talk to are still keen to use the seven-year rule and the more accessible exemptions, such as the annual £3,000 allowance and normal expenditure out of income. If anything, the challenging environment can make clients even more determined to mitigate this tax.'
Last year, bereaved families paid a record £8bn in inheritance tax, a £750m increase on the year before, according to data published by HM Revenue & Customs (HMRC).
Wealth advisers have said there has been a rise in parents making six-figure gifts to get their children on the property ladder to escape the tax grab.
Rebecca Williams, head of financial planning at Rathbones, said: 'The Bank of Mum and Dad is under pressure. Clients are walking a line between supporting children today, having enough for later life care tomorrow and not wanting to give the Treasury too much of their hard-earned wealth on death.'
An HM Treasury spokesman said: 'The number of taxpaying estates was published by the Office for Budget Responsibility in October.
'We continue to incentivise pension savings for their intended purpose – of funding retirement instead of them being openly used as a vehicle to transfer wealth – and more than 90pc of estates each year will continue to pay no inheritance tax after these and other changes.'
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