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Soaring property prices and frozen thresholds have seen a boost to Inheritance tax (IHT) revenues.

The taxman has grasped a 16 percent increase in the levy in the financial year to January.

Total tax receipts from those leaving money and assets behind since April have leapt past £5bn and are on course for a record year, according to data from the Office for National Statistics.

It compares to £4.3bn generated over the same period last year.

A double-digit surge in house prices and Chancellor Rishi Sunak’s move to freeze the threshold at which the tax becomes payable is behind the rise.

Critics say the Chancellor is set to raise billions of pounds more from people who become a higher rate taxpaper for the first time when they die.

The standard inheritance tax rate is 40 percent charged on everything in an estate above the £325,000 tax-free threshold.

An extra £175,000 residence nil-rate band introduced in 2017 also qualifies for tax-free status..

The threshold normally rises over time to keep pace with inflation but Mr Sunak has frozen this tax-free limit until April 2026 in a bid to shore up the public finances.

That is generating more money particularly when combined with the boom in the housing market, which has pushed average asking prices up by nearly £40,000 since Covid struck.

Shaun Moore, tax and financial planning expert at Quilter, has called for a re-think of an ‘incredibly complex system’.

He said: “Sustained property price growth and asset price inflation has pushed up the value of estates, meaning higher IHT receipts for the government.

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“IHT was once viewed as a tax on wealthier individuals, but the reality is that the average UK property is only £50,288 short of the standard nil rate band.

“With these thresholds frozen until 2026 and house prices still on the up, many more people could face a hefty IHT bill. 

“The residence nil rate band (RNRB) was introduced in 2017/18 to account for rampant house price growth, but as a result we have an incredibly complex IHT system, which is poorly understood and therefore poorly planned for.

“In fact the Office for Tax Simplification has described the RNRB as one of the ‘most complex’ areas of IHT and even said that some solicitors choose not to advise clients on the RNRB because it is too complicated.

“Perhaps now is time for a rethink of IHT to make the regime as easy to understand as possible for IHT payers.”

Darran Harrison, wealth planner at Kingswood, said the freeze was “resulting in many families receiving increased inheritance tax bills as more estates are brought into scope on the back of rising property and share prices”.

The Office for Budget Responsibility expects that billions of pounds more will be generated from inheritance tax in the coming years.

By 2026-27, £7.6bn is expected to be generated annually from squeezing inheritances.

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