Nearly 1 in 10 inheritance tax-paying families handed a half a MILLION pound bill

More families are being stung by inheritance tax, with nearly one in 10 of those paying the levy now being handed a bill of more than half a million pounds.

A Freedom of Information request by Rathbones shows that 2,520 estates paid more than £500,000 in IHT in the 2021-22 tax year, a 29 per cent increase over three years.

Of the nearly 30,000 estates eligible for the death tax, 1,630 paid between £500,000 and £999,999 in IHT, while a further 890 estates paid over £1million.

If the current trajectory continues, over 3,524 estates will pay more than £500,000 in IHT by the end of the current tax year, based on an average increase of 8.74 per cent a year, according to Rathbones.

Frozen thresholds combined with rising asset prices, including the value of homes, investments and savings, are already dragging more into death duties.

The number of families affected is only set to rise as pensions are brought within the IHT scope from April 2027 and especially if thresholds remain frozen.

Currently, your estate needs to be worth more than £325,000 for your loved ones to have to stump up inheritance tax.

This can be doubled to £650,000, jointly, for married couples or civil partners who have not already used up any of their individual allowances.

A further crucial allowance, the residence nil rate band, increases the threshold by £175,000 each for those who leave their home to their children, grandchildren or great-grandchildren.

This gives a total potential boost of £350,000 and creates a potential maximum joint inheritance tax-free total of £1million.

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In 2021-22, approximately 39 per cent of estates with an IHT liability paid between £100,000 and £499,999. Of these, 7,270 paid between £100,000 and £249,000, but the majority of estates paid up between £0 and £100,000.

Rebecca Williams, divisional lead of financial planning at Rathbones said: 'The deep freeze on both the main nil-rate band and the residence nil-rate band, unchanged since 2009 and 2017 respectively, has led to a creeping form of fiscal drag.

'As house prices and asset values have steadily risen, more estates are being brought into the IHT net simply because the thresholds haven't kept pace with inflation.

'Without proactive steps, more estates will find themselves facing IHT bills they might not have anticipated.'

There are growing concerns that the Chancellor could make further changes to IHT, including extending the seven-year gifting rule to ten years, which could drag more people into the tax net.

Currently, no tax is due on any gifts you give if you then live for another seven years.