HMRC has clarified inheritance tax rules amid concerns that middle-income households could be affected. In a written update to Parliament, James Murray, Financial Secretary to the Treasury and Paymaster General, confirmed that fewer than 5% of UK deaths in the 2023-24 tax year resulted in an inheritance tax charge.
The clarification came after Liberal Democrats MP for North East Hampshire, Alex Brewer, asked Chancellor John Healey to assess the impact of inheritance tax on middle-income households whose estates are primarily made up of residential property. The MP also asked how many estates were liable for inheritance tax in each of the last five years.
Government response on inheritance tax thresholds
Responding on behalf of the Chancellor, Mr Murray said: “Inheritance tax is only paid by a small number of estates. For the 2023-24 tax year, the most recent year available, fewer than 5% of UK deaths resulted in an inheritance tax charge.”
He explained that no inheritance tax is due on any property, money, or other assets passed on to a spouse or civil partner. He also highlighted the various nil-rate bands and reliefs available, including a £325,000 nil-rate band and a residence nil-rate band of a further £175,000 for those passing on a qualifying residence on death to direct descendants such as children or grandchildren.
Up to £1 million can be passed on tax-free
This means qualifying estates can pass on up to £500,000, and the qualifying estate of a surviving spouse or civil partner can pass on up to £1 million without an inheritance tax liability.
The government also issued a statement regarding pension property, noting that personal representatives will be responsible for reporting and liable for paying any inheritance tax due on notional pension property. From the point that any notional pension property is vested in a beneficiary, they become jointly and severally liable with the personal representatives for any inheritance tax attributable to that property.
In normal circumstances, neither pension scheme administrators nor trustees of registered pension schemes will be liable for any inheritance tax. However, pension scheme administrators will become jointly and severally liable with the beneficiary and personal representative if they fail to action a valid withholding notice or payment notice.
