Middle-class families 'resentful' as Government takes record £4.6bn inheritance tax bill

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George Osborne announced a more generous inheritance tax threshold in last year's Summer Budget Credit: Matt Dunham/AP

British families’ inheritance tax bill will this year exceed £4bn for the first time in history, official data shows, as experts warn resentment is building among a record number of middle-class savers now being forced to pay “death duties”.

Inheritance tax receipts for the 12 months to February this year, published by the Office for National Statistics, show this year’s inheritance tax bill is on track to be more than a fifth higher than last year, with the Government expected to take £4.6bn in inheritance tax in 2015-16 compared to £3.8bn for the same period in 2014-15.

Separate projections from the Office for Budget Responsibility (OBR) reveal the number of family estates on which inheritance tax must be paid has quadrupled since 2010, with the number up from around 10,000 to more than 40,000 this year.

Experts on Saturday condemned inheritance tax as a “devious” tax on middle-class savers who have enjoyed financial success. They warned the boost to the Government's coffers would foster resentment among families being charged ahead of a new, more generous allowance being introduced next year

 

Currently estates worth up to £325,000 can be passed on without paying inheritance tax with a rate of 40pc payable above the threshold. But this is changing in April 2017 when the Government will introduce an additional tax-free allowance which will eventually allow homeowners to bequeath an extra £175,000 in property wealth. This means a new allowance for property owners of £500,000 – or £1m for couples.

George Osborne, the Chancellor, announced the policy in last year's Summer Budget to lift thousands of middle-class homeowners who want to leave their properties to younger family members out of inheritance tax. 

But OBR data suggests that despite the impact of the new reforms, the number of families paying inheritance tax is still on track to soar in future years.

It said more people have been hit by inheritance tax this year because of sharply rising house prices. Average year-on-year house price growth accelerated to 5.7pc last year with the average home now worth more than £200,000, according to Nationwide research published on Saturday.

The number of inheritance tax receipts was also boosted by a spike in winter deaths as a result of the flu virus hitting older people particularly hard last year. As a result the Treasury said it was expecting to net an extra £200m more than expected.

Justin Urquhart Stewart, director at Seven Investment Management, a stockbroker, said: “When the biggest benefactor of your estate is going to be the Chancellor that tends to grate on people. Inheritance tax is a devious tax which discourages family wealth. For the ludicrously wealthy it makes no difference at all, but for families who have worked hard to achieve reasonable success its effects can be life changing."

Alan Miller, director at SCM Direct, a wealth manager, said: "Families paying inheritance tax now and just missing out on the higher allowances have every right to feel resentful. It is a deeply unfair tax as people have already paid income tax on the money they have earned - why should they be taxed again?"

A HM Treasury spokesperson said: “The government wants hard-working families to be able to pass on their home to their children or grandchildren. We recognise that more families are being pulled into the inheritance tax net than ever before, with the number set to double over the next five years.

“That’s why we’re reforming the rules to bring down the number of families paying inheritance tax. Under our new system hard-working families will have a new £175,000 inheritance tax allowance for their home on top of the existing £325,000 threshold – allowing them to pass £1 million onto their children completely free of inheritance tax.”

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