Inheritance tax: Interest rate hike sparks sudden surge in death levy payments

It has been estimated approximately £800million was paid in June alone.

The increase in money pocketed by the taxman comes after families were making payments as early as possible to avoid interest rates on late payments.

Interest rates have continued to creep up as a result of hikes introduced by the Bank of England.

Inheritance tax bills start to accrue additional interest six months after death.

The rate increased to 7.5 per cent on late bills, up from seven per cent in June.

A note from HMRC said: “Receipts in June 2023 were the highest monthly total on record and could also be due to possible effects from the recent rise in interest rates that HMRC is obliged to charge on overdue tax bills following the recent increases in the Bank of England base rate.

“These recent interest rises may have encouraged the personal representatives of some estates to pay any tax due sooner than they otherwise would have done, though note that HMRC are not able to confirm this until full administrative information becomes available.”

Inheritance tax raises more than £7billion a year, The Telegraph has revealed.

The death levy is expected to generate £8.4billion by 2027/28.

Thousands more Britons are expected to fall into the threshold to pay the controversial tax.

The main allowance stands at £325,000, a figure which has not increased since 2009.

However, despite the rate remaining frozen until 2028, house prices and inflation have soared in the last decade.

A Government spokesman said: “The vast majority of estates do not pay inheritance tax – more than 93pc of estates are forecast to have zero inheritance tax liability in the coming years – however, the tax raises more than £7bn a year to help fund public services millions of us rely on daily.

“Estates of surviving spouses and civil partners can pass on up to £1 million without an inheritance tax liability – significantly more than the average UK home of £286,000.”