02-06-2025
Double-digit rise in northerners paying inheritance tax
Northern households are increasingly being caught in the Government's inheritance tax raid, new data shows.
Since 2015, there has been a 40pc surge in the number of families in the North West forced to pay death duties due to the Government's frozen thresholds. This was the biggest increase of any region in England.
Properties in the north of the country are far cheaper than in the south, yet frozen thresholds coupled with house price inflation mean smaller estates are being dragged into inheritance tax.
The top three postcodes which saw the sharpest rise in families paying inheritance tax between 2015 and 2022 were Wolverhampton, Bradford and Dundee, according to data from HM Revenue and Customs obtained by the law firm Irwin Mitchell in a Freedom of Information request.
The number of London families dragged into the net rose by only 4pc over the same period.
Each individual can leave behind up to £325,000 without paying inheritance tax, however, this tax-free allowance has been frozen since 2009 despite soaring house prices. Had the Government increased the threshold in line with inflation, it would be worth almost £520,000 today.
It means families who might not consider themselves wealthy are increasing forced to pay the 40pc charge.
The modest rise in Londoners paying inheritance could reflect the use of tax avoidance strategies among the wealthy elite, according to Irwin Mitchell.
Despite this, the amount of tax paid by Londoners still leapt by over 40pc due to the number of high value estates in the capital.
Families in inner London forked out £831m in 2015, but Irwin Mitchell predicts this will hit £1.6bn by 2026-27.
Meanwhile, it expects the tax haul in Wolverhampton to soar from £8m in 2015-16 to £38m by 2026-27 – an increase of 375pc in just over a decade.
England has long suffered from a North-South divide, with workers in the South East earning on average £12,800 more than in the lowest paid areas of the country such as Burnley and Huddersfield, according to research from Centre for Cities.
The average property in the North West sells for about £250,000, almost half the value of a typical home in the South East.
Chris Etherington, of accountants RSM, said the number of northerners paying inheritance tax will rise again because of the changes to business tax relief announced in the October Budget.
As part of her maiden budget, Rachel Reeves slashed tax relief for business owners and farmers while also making pensions liable for the 40pc charge, dragging an estimated 10,000 new families into the net.
Mr Etherington said: 'There are significant numbers of privately owned businesses in the North that will be impacted by the changes to inheritance tax reliefs from April 2026, and it is inevitable more estates will have a tax bill to pay as a result.
'There are thriving entrepreneurial businesses in the North, in particular in industries such as manufacturing and technology, and many business owners are still unaware of the inheritance tax implications that lie ahead.'
This comes as a study by Family Business UK warns that the new inheritance tax rules for family businesses and farmers could wipe almost £15bn off the UK's economic activity.
Andy Butcher, of wealth manager Raymond James, said: 'How are business owners supposed to plan for their succession when the business will now likely have to be sold on their death to cover inheritance tax? It's a short-term cash grab which will cause significant damage to the UK economy in the longer term.'
Homeowners passing on their main property can claim an additional £175,000 allowance called the residence nil-rate band. Couples can share their allowances which means they can protect up to £1m from the 40pc charge.
