Baby boomers will pay a combined £90billion in inheritance tax as an expected surge in deaths and frozen thresholds mean more will be hit by death duty, figures show.
Jason Hollands from broker Best Invest said people born at the height of the postwar baby boom would now be 76 with a number of them likely to die within the next decade, or so life expectancy would suggest.
He told the Telegraph: “Deaths from this generation will likely spike between 2026 and 2030, generating a surge in inheritances.”
Inflation, rising house prices and the “fiscal drag” effect of the Government’s freeze on thresholds along with surging deaths mean more families will be subject to inheritance tax (IHT).
The tax has to be paid if the value of your estate is above the £325,000 threshold unless you leave everything above that threshold to your spouse, civil partner, a charity or amateur sports club. Anything above the threshold is taxed at 40 percent.
An additional £175,000 allowance is applied to family homes passed on to direct descendants with rules on married couples and those in civil partnerships meaning up to £1million can be passed down tax free.
However, since 2009 the base threshold has been frozen while from 2017 the extra allowance for a residential property has not shifted. The threshold is frozen up to and including 2025-26.
Mr Hollands said the “stealth tax” effect of frozen allowances and demographics is set to deliver the Treasury with “a tax bonanza”.
Calculations carried out by BestInvest for the Telegraph suggested the Treasury could net up to £90bn over the next 10 years if the current rate of increase in those having to pay IHT continued.
The total number of deaths which resulted in an IHT charge has increased, according to HMRC.
In the tax year 2020 to 2021, there were 27,000 taxpaying IHT estates, which is an increase of 4,000 since the 2019-20 tax year. The average bill was £214,000.
In 2023-24, the Office for Budget Responsibility (OBR) forecasts IHT will raise £7.2bn, representing 0.7 percent of all receipts and equivalent to 0.3 percent of national income.
OBR forecasts show there will be 47,000 taxpaying IHT estates by 2028 while HMRC data suggests the figure could be as high as 49,400.
A Government spokesman told the Telegraph the vast majority of estates do not pay inheritance tax.
He added: “[M]ore than 93 percent of estates are forecast to have zero IHT liability in the coming years and the tax raises more than £7billion a year to help fund public services millions of us rely on daily.
“Estates of surviving spouses and civil partners can pass on up to £1million without an IHT liability – significantly more than the value of the average UK home of £286,000.”
