Inheritance tax alert: ‘More people in the South’ paying thousands of pounds as bills rise

Financial analysts are sounding the alarm that “more people in the South” are becoming liable for the levy. This comes following the news that IHT receipts received by HM Revenue and Customs (HMRC) reached a record high of £6.1billion during the financial year 2021/22. Multiple factors are leading to more households in the South having to pay inheritance tax, according to experts.

These include the hike of wealth transfers following the pandemic, increased asset values and the freezing of nil rate band thresholds.

While full details for the tax year are not yet available, experts are citing current trends which look likely to continue which could lead to people paying thousands of pounds more in tax.

For the 2019/2020, around 19,200 estates used the residential nil rate band threshold, and £4.1billion of chargeable estate value was saved from a potential IHT charge.

Overall, the amount of IHT paid per estate rose from £179,000 in 2014/15 to £216,000 as smaller estates dropped out of paying IHT.

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However, with the freezing of the inheritance tax nil rate bands last year, more people are likely to fall into the liability threshold for paying the tax.

This is because while house prices continue to rise, the threshold at which someone pays IHT is remaining the same which leads to more people having to pay it.

Inheritance tax is a levy on someone’s estate after they passed away, which includes their money, estate and possessions.

No IHT is paid on estates which are valued at the £325,000 inheritance tax threshold if any money over this amount is left to a spouse, civil partner or charity.


Many households opt to make financial gifts as a way of saving money on inheritance tax and with the nil rate band freeze this looks set to continue.

Helen Morrissey, a senior pensions and retirement analyst at Hargreaves Lansdown, shared why IHT receipts are on the rise.

Ms Morrisey explained: “Inheritance tax receipts have boomed hitting an all-time high in 2021/22.

“This is due in large part to the horrible consequences of the pandemic which saw increased numbers of wealth transfers.

“However, there are other factors at play that mean more people are being caught out by what is traditionally seen as a wealthy person’s tax.”

The financial expert noted why the decision to freeze inheritance tax thresholds is leading to households being forced to pay more than they otherwise would have, “particularly in the South”.

She added: “One major factor is the decision to freeze the various thresholds available until 2025/26.

“This means that estates worth more than £325,000 are subject to inheritance tax, though any unused allowances when one partner dies can be transferred to spouses and civil partners.

“In addition, if you want to transfer a property to a close relative you have a further nil rate band of £175,000.

“These allowances have been well used to help families avoid having to pay billions of pounds in IHT.

“These may feel like large amounts but given the stellar performance of the property market in recent years the decision to freeze these allowances means more and more people, particularly in the South, are becoming liable to pay and with limits being frozen until 2026 we will likely see the amount of tax paid continue to grow over the coming years.”