Climbing Inheritance Tax

Official figures are showing that the inheritance tax (IHT) is taking a strong climb again. 

Families have paid more that £3bn in IHT, the biggest sum since the onset of the credit crisis.  An increase on focus by the HMRC on the collection of IHT could explain the rise.

The Office of National Statistics (ONS) showed the IHT take in the tax year ending April 2013 was £3.1bn, which is up from £2.9bn the previous year.  This being the third increase in a row.

In 2007-08 was the highest IHT tax take at £3.8bn which illustrated the link between the hatred tax and house prices.  That tax year also marked the peak in the housing market, with the credit strain and the collapse of the Nothern Rock Building Society which took place late 2007.

The ONS said that “up until 2007-08 receipts had been climbing steadily, reflecting increases in asset prices over this period, specifically property prices and household savings.”

The fall off was down to dropping house prices and the changes in the IHT policy, where married couples were permitted to pass their IHT allowances to one another which effectively doubled a family’s allowance.

The ONS said “The particular policy change was the transeferable nil rate band whereby any unused nil rate band from the first death within a marriage or civil partnership, could be claimed against the estate on the second death.  Although the policy became effective in October 2007, the six month lag between death occuring and having to file a return meant its impact could only be seen from the 2008-09.

The nil rate band, or allowance is currently frozen until 2019 at £325,000 per person, so married couples can bequeath up to £650,000 tax free and the Government has indicated that it is not likely to increase for several years.