Number of families paying inheritance tax will double

Asia's Tech News Daily

Thousands more families will be forced to pay inheritance tax in the coming years than previously feared, official figures have revealed. 

Number of families paying inheritance tax will double
© Provided by The Telegraph Man in a trap cartoon

The number of people paying the divisive levy will more than double compared to pre-pandemic levels in the next five years. The number of estates subjected to the death duty will reach close to 50,000 annually by 2026, up from 22,000 in 2018-19 before the pandemic began, according to the latest economic predictions from the Office for Budget Responsibility, published alongside the Budget. 

Just six months ago, the OBR said 36,000 people would be paying the 40pc death duty by 2026.

But higher than expected inflation, booming house prices and a five-year freeze in tax breaks announced at the spring Budget have forced the official forecaster to dramatically revise its expectations. 

This is despite its previous forecasts already factoring in more people paying IHT because of the vast death toll caused by coronavirus. 

The death tax burden on bereaved families is now expected to reach £7.6bn by 2026, up from the £6.6bn estimated in March. The overall tax haul is now expected to increase by around two fifths within the next five years, rather than by a quarter, as previously expected. 

It will net the Government an extra £2.7bn in “windfall” revenue over the next five years. 

It comes as the Chancellor Rishi Sunak pledged to cut taxes by the end of the current Parliament, after freezing income tax bands and raising the rates of National Insurance, dividend tax and corporation tax in the wake of the crisis. 

Robert Salter of accountants Blick Rothenberg said grieving families were being taxed by stealth. 

“For a Government which prides itself on low taxation, it is particularly unfair. It absolutely represents a type of stealth taxation. It’s a clever and easy way to rake in more, but is painful and unfair on the bereaved,” he said. 

The five-year freeze to the £325,000 IHT allowance, which has not risen since 2009, will result in more families being caught out as their investments and properties rise in value – a phenomenon known as “fiscal drag”. 

House prices have risen by 10pc over the past 12 months, thanks to the Chancellor’s stamp duty holiday, which helped fuel a house buying frenzy.  

Broader inflation is now forecast to rise at an annual rate of 4.4pc, up from the 1.8pc March forecast. 

The £175,000 main residence “nil-rate band” – also called the family home allowance – which gives extra protections to those passing on their main home to a direct descendent, will also stay frozen until 2026 at the earliest.

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