Eight of UK’s 10 fastest-growing inheritance tax areas are low-earning

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New research from leading private wealth law firm Boodle Hatfield revealed a startling eight out of the 10 fastest-growing areas paying inheritance tax (IHT) comprise the country’s lowest earners. The firm partly attributes this to the rate at which IHT starts to be paid having not changed for over a decade.

Inheritance tax is applied to the estate, such as money, property and possessions, of a person who’s died and can land families with a sizeable bill to pay.

The nil-rate band, which is the maximum threshold a person can inherit before paying IHT, has been frozen at £325,000 since 2009.

However, while UK inflation rates rocket and house prices surge, it’s argued this threshold is now far too low and it’s hitting many households much harder.

But hit hardest of all, according to Boodle Hatfield, is constituencies comprising those with annual wages much lower than the average.

Boodle Hatfield’s research found Cardiff North to have seen the number of estates liable for IHT grow by 47 percent from 30 in 2014-15, to 44 in 2019-20, despite average wages in the area resting 16 percent below the national average.

The average salary in Cardiff North is £26,736, whereas the national average wage sits at £31,646.

With an average salary of £21,927, West Worcestershire has seen the number of estates subject to IHT jump by 40 percent over the same period, even though average wages in this area are a staggering 31 percent lower than the national average.

The remaining six constituencies of lower than average earners paying more IHT include:

  • Hemel Hempstead – £21,190
  • Daventry – £28,956
  • Chelmsford – £29,711
  • Hornchurch and Upminster – £29,694
  • Macclesfield – £30,195
  • Aylesbury – £31, 006

Kyra Motley, Partner at Boodle Hatfield, explained that with UK inflation nearly reaching 10 percent, the need to increase the nil-rate band is more urgent than ever.

Ms Motley said: “Over the last decade, a significant proportion of the tax-free allowance on estates has been eroded as a result of a process known as ‘fiscal drag’.”

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Fiscal drag occurs when tax brackets do not move with inflation. In respect of inheritance tax, this causes more taxpayers to fall into the inheritance tax bracket, increasing overall inheritance tax payments.

Ms Motley continued: “The parts of the UK that are seeing the biggest growth in estates coming under the IHT threshold comprise of lower-than-average earners. That does suggest the burden of inheritance tax is getting too great.

“The nil rate band has been frozen for 13 years and isn’t due for a review for another four years, meaning more and more estates will continue to come over the threshold.

“Ordinary families are increasingly being faced with inheritance tax bills at a time where the cost of living is becoming increasingly burdensome.”

The Treasury reported having raked in an additional £70 million in inheritance tax over the last year – taking IHT revenue to an all-time high.

But the Office for National Statistics doesn’t see this trend reversing anytime soon. It predicts that by 2026-27, inheritance tax will raise up to £7.6billion a year.

However, there are certain ways to boost the IHT threshold, from optimising gift exemptions to maximising certain reliefs. Click here to read more.

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