Chart that tells a story . . . inheritance tax

What does this show?

Having peaked at £3.8bn in 2007-08, the amount of inheritance tax collected by HM Revenue & Customs fell sharply during the financial crisis.

Receipts recovered to £3.4bn in 2013-14, rising 9 per cent year-on-year, and the Office for Budget Responsibility - the government's fiscal watchdog - forecasts faster revenue growth in the years ahead. It predicts the Treasury will collect £5.8bn in the 2018-19 tax year.

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When is inheritance tax due?

So-called "death duties" are payable on estates worth more than £325,000. Assets above this threshold, known as the nil-rate band, are taxed at 40 per cent.

Amounts over this amount are exempt from inheritance tax when passed to a spouse or civil partner, and any unused IHT nil-rate allowance can be used by the surviving partner.

The introduction of this transferable nil-rate band in 2007 has had the effect of exempting many estates worth up to £650,000 from IHT.

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Who pays inheritance tax?

In 2011-12, the most recent year for published figures, roughly 16,000 estates were liable for IHT, barely 3 per cent of the total.

During the recession, the proportion of IHT paid by the wealthiest families rose sharply. The share paid by estates valued at more than £1m rose from 49 per cent in 2006-07 to 69 per cent in 2011-12, according to HMRC figures. The amount paid by estates worth less than £500,000 plummeted from £655m to £131m.

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Why are receipts forecast to rise?

The nil-rate band was raised to £325,000 in 2009, and will remain at that level until 2018. But inflation in asset values - particularly house prices in London and the Southeast - is expected to push thousands more estates above this static threshold each year.

The OBR forecast in June, estimated that the proportion of deaths that would incur IHT liabilities would rise to 8 per cent by 2015-16, and then to 10 per cent by 2018-19.

The effective rate of IHT on estates with liabilities is also expected to rise.

With estates worth more, the OBR estimates that the average effective rate will increase from 5.9 per cent in 2013-14 to 7.8 per cent in 2018-19, resulting in even higher yields for the Revenue.

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Can inheritance tax be avoided?

Do not let HMRC hear you asking that.

As part of its broader crackdown on tax avoidance, the tax authority proposes closing the net on schemes designed specifically to minimise the amount of IHT paid by their participants.

In some cases, taxpayers involved in arrangements deemed to be tax avoidance schemes could be subject to "accelerated payment notices", requiring them to pay disputed tax associated with their investment upfront in a legal dispute.

Recent proposals also seek to restrict the use of trusts, an estate planning option historically available to the reasonably wealthy. HMRC has suggested limiting the amount that individuals can transfer tax-free into trusts to a lifetime allowance equivalent to the nil-rate IHT band.

One means of avoiding IHT is to pass on assets while still alive. Gifts are exempt provided that the benefactor survives for a further seven years or more. If he or she should die within this time, IHT is payable on a sliding scale. Gifts of less than £3,000 a year are permanently exempt.

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