Inheritance tax rate double EU average

Inheritance tax rate is almost double the average rate paid by our EU neighbours, as the UK pays 23.9% compared to Germany’s 13.2% rate

Taxpayers pay an average of 23.9% (£536,688) in inheritance tax (IHT) when an estate worth £2.2m is inherited.  

Only a small number of people actually pay IHT, with only 4.2% of all UK deaths were subject to the death duties in 2017-18.

In comparison, individuals in the EU pay an average of 10.3% (£232,158) on an estate of the same size, according to analysis by UHY Hacker Young.

In the bigger picture the UK has the fourth highest IHT rate out of 28 countries, first is Japan with a rate of 29.5%, they are the only Asian country in the top 15.

Belgium is in second place at 27.08% on estates under £604,549, and France are just above the UK paying £568,931 at 25.3%.

As well as the overall rate being high, some experts have argued that the UK’s IHT regime is too complex. A number of different allowances must be taken into account when calculating what is owed in IHT, which can easily result in people missing out on reliefs and exemptions.

The Office for Tax Simplification has proposed reducing the number of free gift allowances to just one simpler allowance as a result.

IHT is seen by many as an unfair death tax. This has led to calls for it to be abolished, as high IHT rates can mean individuals face large tax bills when they are dealing with bereavement.

The US, China and Australia have no estate duties meaning they pay no IHT. There are also countries in the EU that do not charge IHT, such as Croatia, Poland and Portugal.

HMRC collected a record £5.4bn of IHT receipts in 2018-19, this increased from £5.2bn in the previous year.

There has also been criticism of the Treasury for freezing the IHT threshold at £325,000 for over a decade, which has resulted in more families being caught by the tax. This threshold has remained unchanged for a decade despite rising property prices pushing more taxpayers into the IHT net.

Mark Giddens, partner at UHY Hacker Young said: ‘There will always be debate about the rights and wrongs of taxing inherited wealth, but the high rate of IHT in the UK is undoubtedly a factor for those deciding whether to invest or settle here.

‘IHT in the UK can be very complicated and anyone with a sizeable estate will need professional guidance to navigate it. Simplifying it would be a very popular move for the government to make.’

Zak Jakubowski |Reporter, Accountancy Daily [2019-2021]

Zak Jakubowski was a reporter at Accountancy Daily, published by ...

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