HM Revenue and Customs (HMRC) has taken a record £4.6 billion in inheritance tax (IHT) in 2015/16.
Inheritance tax receipts for the 12 months to February this year, published by the Office for National Statistics, show this year’s inheritance tax bill is a 21% increase from the £3.8 billion the tax office took in the previous year.
Despite the IHT threshold remaining at £325,000 since April 2009, increases in property prices means more individuals are being caught by the tax.
Unlike income tax which is subject to where one is resident, one is subject to UK IHT if they are deemed domiciled in the UK, even if they are not a UK tax resident, with IHT applying to UK and worldwide assets.
Friends of the late comedy great, Ronnie Corbett have said he was forced to sell his seven-bedroom South London mansion, moving instead to a nearby bungalow, to save his children a six-figure inheritance tax bill.
The comedian, who died last month, sold Fairways, his family home of 33 years, for £1.27 million, in 2003. He then purchased a smaller property, several hundred metres away, for £250,000.
Friends suggested the couple may have used the seven-figure windfall to distribute cash to their two daughters, Emma and Sophie, under rules that allow parents to pass on money without incurring a 40 per cent inheritance tax charge, provided they survive for seven years after the gift is made.
As the IHT threshold has stayed at a fixed rate for almost seven years, individuals who were not originally intended to be taxed are now facing significant bills because of the rise in property prices, particularly in London and the South East of England.
Despite the record IHT haul, the government’s recently announced plans to introduce new probate fees that means an estate worth more than £2 million would pay a probate of £20,000 instead of the current £215.
However the government has also added a new main residence nil-rate band for the primary residence when it is bequeathed to a direct descendent. This will add an extra £100,000 to the threshold in 2017 and by 2020 will add £175,000.
This band will gradually bring the threshold to £1 million for married people, with certain conditions. However, these measures will do less for childless couples and individuals who have never owned their own property.