The proportion of UK deaths resulting in an inheritance tax charge has risen to its highest level in almost twenty years, new data from HM Revenue & Customs has revealed.
The latest figures from HMRC show that in the 2023/24 tax year, 4.72% of UK deaths resulted in an IHT charge.
While IHT is payable on fewer than one in 20 estates, the proportion of deaths liable for IHT is the highest it has been since 2006/07 when it was 5.96%.
IHT tax liabilities created in the 2023/24 tax year were £7.03 billion, a 5% rise compared to the previous year. The higher figure was driven by a combination of higher volumes of wealth transfers, recent rises in asset values and frozen thresholds.
The average bill also rose by 9% from £212,000 in 2022/23 to £231,000 in 2023/24.
Claire Trott, head of advice at St. James’s Place, said: “Rising asset values and frozen tax-free thresholds mean more people may find themselves with an inheritance tax liability, even if they do not consider themselves particularly wealthy.
“Inheritance tax planning is rarely something that can be dealt with effectively at the last minute. A sensible starting point is to understand what you own, how those assets are structured and who you would like to benefit. Wills, pension nominations and other arrangements should also be reviewed regularly, particularly after changes in family circumstances or tax rules.”
The inclusion of unused pension funds within estates for inheritance tax purposes from April 2027 will add another layer of complexity. According to the Office for Budget Responsibility, the number of estates paying inheritance tax will rise to nearly 10% of deaths by 2029/30, as frozen thresholds and policy changes bring more families within the scope of the tax.
Trott said: “It will make it increasingly important to consider pensions alongside property, savings and investments as part of one joined-up estate plan. Taking advice early can help people understand their options and pass on wealth in a way that is both tax-efficient and consistent with their wider wishes.”
Simon Martin, head of UK technical services at Utmost, said: “The inexorable rise in the proportion of estates facing Inheritance Tax shows how a tax once associated primarily with only the very wealthy is now affecting a growing proportion of families as frozen thresholds continue to bite.
“This direction of travel looks set to accelerate as recent reforms to the Inheritance Tax regime begin to take effect. Measures such as the inclusion of pension benefits in estate calculations from April 2027, for example, will further increase the number of families facing a potential liability.
“Families should not wait until these changes take effect, as the range of options available to manage a potential liability may narrow over time. It underlines the importance of professional financial advice in helping families understand their individual situation and pass on their wealth to loved ones as efficiently as possible.”
