Number of people paying inheritance tax falls for first time since 2009

Linda J. Dodson

It is the first time official figures have been published since the “residence nil rate band”, or “family home allowance”, was introduced in 2017.

The relief extends extra protections to families passing on their main residence to children or grandchildren, although it starts to taper away once an estate exceeds £2m in size.

It was gradually phased in over the past three years, reaching its full amount of £175,000 this year. When combined with the £325,000 IHT allowance, it allows spouses and civil partners who can combine their tax breaks to pass on up to £1m tax free. 

Without the policy, the number of people hit by IHT was forecast to reach 63,000 by 2021. The Government now estimates that fewer than 40,000 people will have to pay.

However, the policy has been criticised for being overly complex and for discriminating against single and childless people who cannot take advantage of the tax break.

Andy Butcher, of wealth advisers Raymond James, said IHT was an “unfair tax on money that’s already been taxed”. He called for the “overly complicated” family home allowance to be abolished and replaced with a higher amount of relief for everyone.

“It’s simply not fair that it benefits some people and not others. Many have been forced to pay because property prices have gone up. But you shouldn’t be forced to pay a wealth tax just because of where you live,” he said. 

He said that as the home allowance tapered away once an estate exceeded £2m, more people would eventually end up paying as house prices grew in the long term.

Heather Owen of Quilter, another wealth adviser, said IHT had “morphed into a penalty on homeowners”.

She added: “The new allowance has provided some relief for households but it is still crucial to plan ahead as the rules are complex,” she said.

A report published last year by the Office of Tax Simplification said abolishing the allowance and increasing the main threshold to £500,000 would lead to 34,000 fewer people having to pay the duty by 2024. 

The main £325,000 exemption has not changed since 2009. Had it risen with inflation it would now stand closer to £425,000.

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