Rocketing house prices fuel £1.8bn ‘death tax’ boom

The controversial “tax on the dead” has handed the taxman £300million more than it did at the same time last year. Finance experts say the money grab will pile more pressure on middle-class families at a time of crippling living costs.

They blame the trend on the Government freezing thresholds at which tax must be paid on a person’s estate.

Alex Davies, founder of investment advisers the Wealth Club, said property price rises mean more people die leaving legacies above the limit. His team found HM Revenue & Customs took inheritance tax of £1.8bn in the three months to the end of June – up £300million on the same quarter 2021.

“This increase is being fuelled by soaring house prices and years of frozen allowances which are now being decimated further by rampant inflation.

“It is likely the estates of many individuals with more regular incomes and average value homes, will end up getting caught out by this most hated of taxes. “Moreover, with the government purse under pressure from all angles there is unlikely to be any respite from this soon.”

Danielle Boxall, media campaign manager at the TaxPayers’ Alliance, said: “Taxpayers facing the cost of living crisis are struggling with the increasing burden of inheritance tax.

“Not only does the low threshold mean the levy hits the savings of hard-working households, but coughing up for a huge tax bill is the last thing grieving families want to deal with.

“The Government should abolish the tax entirely and show a more compassionate attitude towards the bereaved.”

The basic threshold above which beneficiaries must pay tax on what they are left is £325,000 – at a standard rate of 40 percent. They may also be able to inherit a house or flat without paying, through a “residence nil rate band” of up to £175,000.

The basic tax threshold was frozen in 2009 and both it and the residence nil rate will not be altered until at least 2026. But Mr Davies said overall inflation over the last 13 years is 45 percent, while houses have increased in price by 67 percent.

Research earlier this year suggests the disparity left bereaved relatives £154,000 worse off than when the threshold was frozen. The Office for Budget Responsibility predicted that the Treasury would earn a record £6.7 billion from inheritance tax this year and next year.

Amy Pethers, of wealth manager Brewin Dolphin, said at the time: “Even those who don’t regard themselves as overly wealthy may find that their estates fall within this band.”

Rob Morgan, of investment service Charles Stanley, said: “It is not unusual for an Inheritance Tax bill to be several hundred thousand pounds.

“Families could struggle to pay large bills and, therefore, be forced to make some difficult choices – such as selling a family home.”