Meanwhile, economists at the Institute of Economic Affairs, a renowned think tank, predict that the number of families affected by the death tax could reach 60,000 by 2033.
A comprehensive analysis conducted by BestInvest, commissioned by Telegraph Money, estimates that if the current rate of increase continues, the Treasury stands to gain up to £90 billion in the next decade.
Rachael Griffin, a distinguished wealth manager at Quilter, warns that Britain is on the verge of a “demographic time bomb”.
“As the baby boomer generation ages and passes away, we should anticipate a significant rise in the death rate. We’ve already seen a surge in inheritance tax receipts due to the increased mortality rate from Covid, which serves as an indication of what lies ahead.”
Compared to other European countries where inheritance tax is often nonexistent, the 40% rate of inheritance tax in Britain is notably high. Furthermore, it pales in comparison to the United States where an “estate tax” only applies to portfolios valued over $12.9 million (£10.3 million).
The growing number of families vulnerable to the death tax is leading more parents and grandparents to strategically give away their wealth before their passing.
Under the “potentially exempt transfer” provision, individuals can make gifts of unlimited value that become exempt from inheritance tax if they survive for at least seven years. Official figures show a 48% surge in the utilization of this exemption by families over the past decade.
However, it is crucial to note that once an asset is transferred, the individual must not retain any interest in it. This complex and unclear set of rules raises concerns that parents who gift their homes may still face the tax if they visit their grandchildren.
While homeowners can transfer ownership of their properties to reduce the size of their taxable estates, the gift will only be exempt from taxation if they vacate the property entirely.
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