Inheritance tax liabilities increase by 4% to £5.99bn for 2021/22 as more deaths result in IHT charge

Annual Inheritance Tax liabilities statistics from HM Revenue & Customs today revealed that:

•    in the tax year 2021 to 2022, 4.39 per cent of UK deaths resulted in an IHT charge, increasing by 0.66 percentage points since the tax year 2020 to 2021. 

•    IHT liabilities created in the tax year 2021 to 2022 were £5.99 billion - a rise of £0.23 billion (or 4 per cent) compared to the previous year. 

•    the combined value of agricultural and business property relief (APR, BPR) was £4.4 billion in the tax year 2021 to 2022 - an increase of £0.2 billion (or 5 per cent) compared to 2020 to 2021

Laura Hayward, Tax Partner at professional services and wealth management firm Evelyn Partners, comments:

“With Chancellor Rachel Reeves warning she needs to plug holes in the public finances, inheritance tax has been widely touted as a possible target. The 4 per cent rise in 2021/22 shows that IHT receipts are already growing stealthily, driven in large part by frozen nil-rate band thresholds and rising asset prices. A Budget IHT crackdown on top would certainly ruffle some feathers, as many savers believe that as they have paid tax in some way on their wealth already, taxing some of those assets again at 40 per cent as they are handed over at death is hard to justify.

“More recent IHT data shows the surge in payments of the tax is gathering pace. HMRC earlier this year revealed that the IHT take for 2023/24 had risen 5.6 per cent on the previous year to a record £7.5billion. That is a significant increase of 226 per cent on the £2.3billion taken in 2009/10. 

“Looking at the detail of the statistics, the extent of business and agricultural property reliefs might give fuel to the fire of calls to water these down. As usual, by far the most used relief was the exemption between spouses and civil partners, which sheltered £15.5bn of assets from tax. But the second most valuable relief was BPR, even though the assets it protected fell 11 per cent on the year to £2.9billion. Combined with APR, which rose 54 per cent, the total of the assets protected by the two reliefs was up 5 per cent to £4.4billion. 

“Both reliefs have featured prominently in Labour soundings that some IHT reliefs are too generous and being ‘abused’. Criticism of business relief often focuses on the inclusion of AIM shares, which many consider an anomaly. But that should not deflect attention away from the important role that these reliefs play for many businesses.

“The aim of BPR was to ensure that family-owned businesses could continue to trade after a death.[1] If these reliefs were abolished or significantly restricted, the application of a top rate of 40 per cent inheritance tax would in many cases mean the business had to be sold on the death of the current owner to pay the tax bill. This would have significant implications for the employees and the stability of the business.

“Very wealthy individuals may have other assets from which to pay inheritance tax, so this would be a particular burden to those whose farm or business is their main asset and livelihood. The current legislation has been regarded as demonstrating sound commercial sense in allowing businesses to continue without the looming risk of a forced sale on death. Farming businesses would often become unviable if a substantial proportion has to be sold. 

“These reliefs have previously attracted criticism, with the implication being that wealthy individuals may invest in farmland or small businesses purely to shield their wealth from inheritance tax. However, a report commissioned by HMRC in 2017 noted views of taxpayers and advisers that inheritance tax planning was primarily driven by a desire to keep businesses and farms intact on the death of the owner. A reduction in inheritance tax liabilities was found to be a secondary concern.”

NOTES
[1] Currently, to allow farms and other family-owned businesses to continue without major disruption to the business on the death of an owner, agricultural property relief and business relief can apply to these assets. Where the criteria for these reliefs are met, agricultural land and businesses can be inherited tax free. 
Two particular areas where reform is rumoured include:
•             Capping BPR and APR reliefs - a recent IFS report [3] recommended capping these reliefs at £500,000 per person
•             Changing the requirement for the level of trading activity a business must take to qualify, potentially from 50 per cent to 80 per cent

ENDS

Disclaimer  
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication.  
Issued by the Evelyn Partners group of companies (the 'Group') which comprises Evelyn Partners Group Limited and any subsidiary of Evelyn Partners Group Limited from time to time.   
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