Inheritance tax paid on gifts has increased by more than 153 per cent since 2011 to hit £256mn in the 2020-21 tax year.
A Freedom of Information request to HMRC by IFA firm Continuum, found the number of estates paying IHT during 2020-21 increased by more than 120 per cent since 2011 to wth 1,300 now affected by the tax.
The sum paid by estates has also risen to £196,923 for 2020-21, a £25,737 increase from 2011.
Estates must pay IHT on gifts that are made within seven years preceding the death of a loved one.
The seven-year rule allows an individual to gift surplus income from employment including pensions, dividends, property and interest.
Ben Alcock, financial planner at Continuum, pointed out that while giving away cash and assets when a person is alive may reduce the amount in their estate, unless the person lives for another seven years, HMRC will count this as part of the estate when they die.
He said: “However, the seven-year rule does not apply to gifts made out of excess income. The rule allows any taxpayer to give away unlimited sums of money without getting caught by IHT – as long as the money comes out of income, not capital.”
IHT receipts increased
It comes as IHT receipts reached £4.6bn for April to October last year (2023) a £0.5bn increase compared to the same period the year before.
During the Autumn Statement, many eagerly waited to see if chancellor Jeremy Hunt would scrap the tax but it was missed out of the announcement.
Recent speculation has indicated that Hunt may be revisiting the subject in the Spring Budget this year as many households continue to get caught out by IHT.
Commenting at the time, Rachel Griffin called the absence of IHT reform in the Autumn Statement a ‘missed opportunity’.
She said: “A more equitable and simplified IHT system involving raising the nil rate band to £500,000 would not only be fairer but more reflective of the changing demographics and societal structures of this country.”
alina.khan@ft.com
