As HM Revenue and Customs (HMRC) receipts continue to rise, Britons are warned about a common misconception that could lead them to overpay the tax man.

The Treasury raked in £400 million more than the same period the previous year, between April and December 2023.

Although one in every 25 estates pays inheritance tax, Britons are warned this number will gradually rise as house prices increase and tax allowances remain frozen.

What was once a tax for the wealthy, is capturing many other people, forcing them to pay 40 percent on their assets over £325,000.

An expert has warned households that inheritance tax rules are complex, and if they are not careful, they will hand over more than they need to.

Jonathan Halberda, specialist financial adviser at Wesleyan Financial Services, said: “There is a perception that Inheritance Tax only affects the wealthiest in society.

“But there are a lot more people who are finding that they have tax to pay, often because the value of their property has grown over time.

“There’s also a common misconception that you will have to pay Inheritance Tax on your family home if it’s worth more than £325,000. That’s not the case.

“Effectively, you have the right to transfer that property to your partner or your children with no Inheritance Tax to pay.”

Inheritance tax is charged at 40 percent above an estate of £325,000, or £500,000 if passed to a direct descendent due to the residence nil rate band (RNRB).

Children, grandchildren and their spouses are the most common examples of ‘direct descendants’. However, foster, adopted, wards and step-children may also be included. It is available for deaths on or after April 6, 2017.

Married couples with children (and a property) can have a combined £1 million tax free before IHT is charged. Couples without children only get a combined £650,000.

The maximum RNRB is currently £175,000 and this amount is fixed until April 2028. Anyone with a net estate over £2million will begin to see their RNRB reduced by £1 for every £2 over this threshold.

Mr Halberda explained that inheritance tax is “undoubtedly complex”. But the reality is that this is largely an optional tax.

By seeking professional support and acting early, people can put plans in place to minimise their risk.

If families overpay their inheritance tax as they did not know about the RNRB, they will be able to get a refund back.

HMRC will refund the excess after they’ve been given probate. Probate is the right to deal with the deceased person’s property, money and possessions.

HMRC will also pay someone interest on the amount they’ve overpaid. However this process could take many months.

To receive the refund, people will need to write to HMRC.

Mr Halberda added: “You can put plans in place to minimise your risk. That might typically include putting savings into a trust, making gifts and taking out relevant life insurance policies that can counteract your liability.

“It’s never too early to start considering how you want your estate to be distributed.”