Inheritance Tax Rises Again and Again!
HM Revenue and Customs recently announced that it received £6bn for inheritance tax receipts in 2021. This is a 19% or £1bn rise in total receipts from the year before – and also a record intake for the UK tax collector.
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 individuals within the seven years prior to death. UK assets are always liable to inheritance tax, regardless of the domicile of the owner.
This year, inheritance tax will affect around 33% more families, breaking all previous records.
UK inheritance tax is determined by domicile, not residence. Someone can live overseas for many years and still be a UK domiciliary, making worldwide estate liable.
If assets are held in the UK, these will be taxable regardless of the domicile status of the taxpayer. Whether living in the UK or abroad, if one spouse is a UK domiciliary and the other is not, it is worth noting that the usual spousal exemption is limited to where the non-UK domiciled person inherits from the one who is UK domiciled.
Why the Increase?
The increase of almost £1bn of inheritance tax collected by HM Revenue & Customs over a 12-month period is due to a few factors, one of which is directly connected to the recent pandemic.
- Covid has had a terrible impact on many families and has led to an increase in the number of annual deaths meant that more estates than usual were assessed for inheritance tax.
- This period has also seen record highs on property values. The surge has increased the value of estates already subject to inheritance tax, but also pushed others across the tax threshold.
- Chancellor Rishi Sunak’s decision to freeze allowances on tax payable till 2026, despite rising inflation, will likely see more families being caught in the inheritance tax net, as least for the next five years.
Against this background it is well worth remembering the observation of Benjamin Franklin (1706-1790), “If you fail to plan, you are planning to fail.”
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