Soaring house prices fuel £1.8bn death tax boom | Personal finance | Finance

The controversial ‘death tax’ has handed the tax authorities £300m more than at the same time last year. Financial experts say the cash grab will increase pressure on middle-class families at a time when the cost of living is crippling.

They attribute the trend to government freezing thresholds at which tax must be paid on a person’s estate.

Alex Davies, founder of investment advisers Wealth Club, said rising house prices mean more people are dying leaving over-the-limit inheritances. His team found that HM Revenue & Customs had levied £1.8billion in inheritance tax in the three months to the end of June, up £300million from the same quarter of 2021.

“This increase is fueled by soaring property prices and years of benefit freezes which are now being further decimated by runaway inflation.

“It is likely that the estates of many people with more regular incomes and average value homes will eventually get caught up in this most hated tax. “Furthermore, with the government’s stock market under pressure from all angles, there is unlikely to be any respite any time soon.”

Danielle Boxall, Media Campaigner at the Taxpayers Alliance, said: “Taxpayers facing the cost of living crisis are grappling with the growing 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 base threshold above which beneficiaries must pay tax on what they have left is £325,000 – at a standard rate of 40%. They may also be able to inherit a house or flat without paying, thanks to a ‘zero residency rate bracket’ of up to £175,000.

The basic tax threshold was frozen in 2009 and this and the zero residency rate will not be changed until at least 2026. But Mr Davies said headline inflation over the past 13 years was 45%, while house prices had increased by 67%.

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

Amy Pethers, of wealth manager Brewin Dolphin, said at the time: “Even those who don’t consider themselves too wealthy may find that their assets fall into this category.”

Rob Morgan, of the Charles Stanley investment service, said: ‘It’s not unusual for an inheritance tax bill to run into the hundreds of thousands of pounds.

“Families could struggle to pay big bills and as a result be forced to make tough choices – like selling a family home.”

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