The death rate increased during the Covid-19 pandemic, which led to a steep increase in the number estates that paid inheritance tax.
HM Revenue & Customs figures released on Wednesday show that inheritance tax liabilities are up by £800mn compared to the 2019-20 tax year.
In 2020-21 the total number of charges increased by 17.5% to 27,000, an increase of 4,000 over the previous year. HMRC attributes the increase in deaths to the pandemic.
Tax experts acknowledge the impact of pandemics on mortality rates, but argue that inflation and frozen thresholds are also important drivers of the increase in liabilities.
“IHT liabilities have reached a record level — created by an array of factors, including the fact the tax-free threshold remained at 2009 levels, and that it has not kept pace with the rising asset value, let alone recent inflationary surges,” stated Lucy Woodward of Saffery Champness.
The fiscal drag will start to bite more in the future when a greater percentage of estates are liable for IHT, if thresholds and allowances remain the same.
Some Conservative MPs are calling for the repeal of inheritance tax to gain support of the electorate in advance of the general election next year.
It’s not surprising, given the steady rise in IHT receipts, driven by the Treasury’s frozen nil rate band thresholds, that this tax, which was already unpopular, is now viewed as a’stealth’ tax. This view comes from Ian Dyall of Evelyn Partners, the head of estate planning.
Experts believe the records taken from the levy could give those who are arguing against the inheritance tax pause to think.
Rachael Griff, tax and financial planner at Quilter, said that there is a possibility that the IHT will be abolished, which could boost wealth creation and, therefore, the economy. However, it could also bring in a new, even more resented tax – a wealth tax.
She warned: “Considering the amount of money the tax generates, eliminating it could cause a huge hole in the budget for the country, further deteriorating the already poor economic outlook. The government will have to fill this hole.”