Soaring house prices and inflation are causing a growing number of people to be left with a large tax bill when a family member dies.
A new Government report shows the amount of inheritance tax (IHT) collected by HMRC could spiral by £37bn over the next five years.
The situation has been worsened by the nil rate threshold having been frozen at £325,000 since 2009 – a figure set to remain until 2026.
As a result, experts at financial advisers Whitley Stimpson are urging middle income families to examine ways of making their savings and investments more tax efficient to avoid leaving their beneficiaries with an unexpected hit on their inheritance.
Director Owen Kyffin said: “IHT was originally a tax on the wealthy, but millions of people are now being drawn into it thanks to rising inflation and the tax threshold freeze.
“Income tax has already been paid on this money and it will be taxed again at 40 per cent unless steps are taken to invest the money wisely before someone dies.”
Figures from the Office for Budget Responsibility’s economic and fiscal outlook families paid £27.2bn in IHT found between 2017 and 2021 – an amount expected to climb 36 per cent to £37bn over the next five years.
Meanwhile, inflation hit a new high in the year to February with the consumer prices index rising by 6.2 per cent.
Owen says families should seek advice to ensure their tax liabilities are managed efficiently.
He added: “There has been a significant increase in private clients, particularly those with property and investment portfolios seeking IHT advice recently. The pandemic has brought planning ahead to the forefront and has given people time to consider legacies and protecting family interests.
“Fortunately, there are still options such as setting up a family trust or ensuring more is left in a pension which is normally free of IHT. Now is the time to act before it is too late.”
