The increase in the value of estates being inherited over the last five years is entirely due to property price inflation, UK private wealth law firm Boodle Hatfield has stated.

The value of residential property being inherited has increased by £6.9 billion in the last five years from £36.3 billion to £43.2 billion in 2016/17*. Over the same period the total gross value of assets being inherited has increased by just £5 billion from £75 billion to £80 billion in 2016/17.

Boodle Hatfield says property inflation has dragged more estates into IHT.

HMRC levied IHT against a record 28,100 estates in 2016/17, up 15 percent from 24,500 the year before.

House price inflation has been a mixed blessing for beneficiaries. Whilst it means beneficiaries are inheriting more valuable estates, the estates are much more likely to fall into the IHT net.

The value of residential property being inherited has increased £6.9bn in the last five years alone

Geoffrey Todd, a partner at Boodle Hatfield, said: “The burden of IHT is now falling not just on the super wealthy but an increasing percentage of middle earning middle England.

“As estates become disproportionately weighted towards residential property, beneficiaries are often having to sell the family home to pay 40 percent IHT. That can be quite an emotional wrench. HMRC has been one of the biggest beneficiaries of rising house prices and static IHT thresholds.

“Despite initially being a tax on the very wealthy, the nil rate band has been frozen at £325,000 for ten years now, so that with fiscal drag it has become more of a tax on middle England. This has had a disproportionate effect on London and the South East.”

The UK Government introduced the Residence Nil Rate Band (RNRB) which took effect in 2017, an extra relief on primary homes which are left to children or grandchildren. Boodle Hatfield cautioned that it remains to be seen what effect the introduction of RNRB will have on the IHT figures for 2017/18 and future years.

This article first appeared in eprivateclient on 4 December 2019.