Inheritance tax liabilities increase by 4% in 2021/22

Inheritance tax liabilities increased by 4% to £5.99bn, a rise of £0.23bn, for the 2021/22 tax year according to data from HMRC.

This came as a result of 4.39% of UK deaths resulting in an IHT charge, increasing by 0.66% compared with the previous tax year.

HMRC stated that this was due to higher volumes of wealth transfers following recent IHT-liable deaths and recent rises in asset values.

It was also caused by the government’s March 2021 and Autumn 2022 decisions to maintain the IHT tax free thresholds at their 2020 to 2021 levels.

The combined value of agricultural and business property relief (APR, BPR) was £4.4bn in the period, an increase of £0.2bn or 5% compared with the previous year.

Commenting on the figures, Laura Hayward, tax partner at Evelyn Partners, said: “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% 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.”

She added: “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% on the year to £2.9bn. Combined with APR, which rose 54%, the total of the assets protected by the two reliefs was up 5% to £4.4bn.”