IHT receipts for 2015/16 were £4.66bn, up 22% on the previous tax year, and £4.84bn for 2016/2017 – a further 4% rise according to the Office for National Statistics.
This has prompted advisers to urge investors not to neglect this crucial but often neglected area of financial planning.
The freezing of the IHT threshold at £325,000 since 2009 is blamed for much of the rise, but NFU Mutual suggested that with subdued house price growth it may indicate a tougher approach from HMRC.
Sean McCann, chartered financial planner at NFU Mutual, said: “It’s clear that the taxman is cracking down hard on inheritance tax by looking more closely at people’s estates and challenging claims for reliefs.
“When inheritance tax receipts rise, it’s usually because of a buoyant housing market. Now, with property prices stagnating, it’s difficult to see what could have caused such a sharp increase in receipts other than a more aggressive approach to inheritance tax.
“The extra scrutiny from tax officials means those who haven’t taken professional advice or planned early could be caught out. This could have a catastrophic effect on family wealth. IHT is one of the more complex taxes and there are plenty of traps to fall foul of – as many families appear be finding out.”
NFU Mutual also noted that the jump in IHT receipts coincides with the government’s 2015 announcement of the Residents Nil Rate band.
The threshold for the nil rate band, which applies to a family’s main residence and is available to direct descendants, starts at £100,000 for 2017/18, rising to £125,000 for 2018/19, £150,000 for 2019/20 and £175,000 for 2020/21.
Couples have double the allowance, a fact that allowed the then Chancellor George Osborne’s boast that homes up to £1m in value could eventually be spared the tax.
Yet NFU noted that since the new Residents Nil Rate Band was introduced, IHT receipts have leapt by £285m compared to the same time last year.
Advisers are warning that even consumers who write a will may not be getting the service they need from their solicitors.
Nexus IFA director Kerry Nelson said: “One issue is that people will do a will, then never read it for 20 years. A lot can change in 20 years not just for the person writing the will, but for their surrounding family.
“People do all the other little bits and pieces, but IHT is left out because they don’t think they’ll die for many years to come. It leaves their estate vulnerable not just to IHT but to how that estate is passed down.”
She added: “The area is so under-advised. I hear horror stories of people going to the solicitor to do a will and they will do a basic mirror will and shy away from anything that is advice led. Solicitors are very good at taking instruction and not outlining what else needs to be done where advisers ask lots of other questions.
“People fear estate planning because of cost, but the cost now is very little in comparison with the implications of any loss due to not planning correctly.”
The ONS has also researched the statistics up to 2014/15 in more detail. It showed that the average net capital value of those estates passing on death in 2014-15 which were liable to an inheritance tax charge was around £983,000.
It found 23,250 estates paid an average £164,000 IHT in 2015/15, up from 19,917 in 2013/14 due predominantly to a much larger number of deaths in the winter of 2014/15.
Some 1,558 estates benefited from the reduced 36% IHT rate (normally 40%) as 10% of the taxable estate was left to registered charities, reducing IHT liabilities on these estates by £33m.