Last year’s inheritance tax collection amounted to an extra 19 percent, according to a recent article in the International Adviser.

HM Revenue and Customs (HMRC) announced that it collected £6 billion in inheritance tax receipts in 2021, a £1 billion rise on the year before and a record intake for the UK’s tax collector.

Jason Porter, director at Blevins Franks Financial Management, said that this year, inheritance tax would affect about 33 percent more families and break all previous records.

Rise in numbers affected

The rise in the numbers affected by inheritance tax is due to various factors, including the pandemic which saw an increase in the number of annual deaths, meaning that more estates than usual were assessed for inheritance tax purposes.

In addition, there were record highs on property values in that time, which saw the value of estates already subject to inheritance tax increase in value, but which also pushed many more properties above the threshold for tax.

In addition, the Chancellor Rishi Sunak’s decision to freeze allowances on the tax payable until 2026, despite the soaring rise in inflation, is likely to have an effect too, with more and more families liable to pay inheritance tax for at least the next five years.

Forty percent rate

Inheritance tax is charged at the rate of 40 percent, with the main allowance usually referred to as the nil rate band before tax is payable at £325,000 per person, though spouses and civil partners can pass any of the unused allowance to each other tax-free. Spouses and partners can then pass assets to the surviving spouses/partner and then that person passes those assets to their children or heirs when they die, giving a potential combined allowance of £650,000.

In addition, there is a second allowance called the residential nil rate band that allows an additional £175,000 per person, which can be combined with a spouse/partner’s allowance to £350,000, but only applies if the home is bequeathed directly to children or grandchildren. In combination, this gives a couple a combined allowance of up to £1 million.

As the article points out, UK inheritance tax is payable on the worldwide estate of a UK-domiciled person who has passed away, as well as on gifts made by UK-domiciled people within the seven years of their death and UK assets are always liable to inheritance tax, regardless of the domicile of the owner.

This article is for information purposes only and is not intended for use as estate planning or tax advice. Please consult with experts for such advice. If you would like assistance on disposing of overseas assets such as property, bank and investment accounts and to sell or transfer foreign-registered stocks and shares, please get in touch with our International Asset Services team on telephone +44 (0)20 7490 4935 or email [email protected]