Inheritance tax ‘on track to break all previous records’ as HMRC rakes in 5.7billion | Personal Finance | Finance
HMRC collected £5.7 billion in inheritance tax receipts in the nine months from April to December 2023, the latest figures show.
This is 0.4 billion higher than in the same period the previous year.
The increase of 7.5 percent means the Treasury is on course to take record receipts of about £7.6billion from IHT in the 2023/24 tax year, after surging to an all-time high of £7.1billion in 2022/23 – a £1billion increase on 2021/22.
One in every 25 estates pay inheritance tax, although the proportion of families affected is getting higher and higher.
This is due to frozen thresholds paired with decades of house price increases pushing the Government’s inheritance tax take on an upward trajectory.
The current £325,000 nil rate band has been at that level since 2009. The residential nil rate band was introduced on a phased basis between 2017 and 2020 and potentially gives an additional £175,000 nil rate band (making a total of £500,000) subject to certain rules.
Both are currently intended to be frozen until 2028.
There are rumours the Government may either scrap IHT entirely or cut the headline rate in the March Budget.
However, even if IHT were scrapped it is possible some tax would apply to assets passed on after death – for example, Capital Gains Tax. The Labour party has said that if it wins the election it would reverse any abolition of IHT.
Laura Hayward, tax expert at Evelyn Partners said: “Despite being paid by a small proportion of estates, IHT is widely unpopular and continues to attract attention as one of the taxes the Chancellor could look to cut at his spring Budget, in an effort to boost the Conservatives’ electoral outlook.
“An IHT cut would have little immediate impact on households’ financial situation, it’s perhaps more likely that a pledge on inheritance tax will feature in the Conservative manifesto rather than in the Budget – particularly as it might appeal to and motivate some of the party’s core voting demographic.
“In the meantime, there are various steps that can be taken to reduce a future IHT liability. It’s invariably a good idea to keep an up-to-date Will to ensure first that one’s assets are distributed as desired, and second that an unnecessary IHT liability is averted.
“With the end of the tax year fast approaching, some savers will want to use their annual gifting allowances before they expire, as gifting will help to reduce the size of an estate – perhaps even taking it below the NRB. Likewise, as defined contribution pension pots are very IHT-efficient, some savers might look to use up their annual pension allowance with extra contributions.”
Stacey Love, tax and estate planning specialist at Canada Life said: “It’s clear from the data that inheritance tax receipts are on a trajectory to break all previous records. While records might be broken, in reality IHT yields far less for the Treasury than other wealth taxes, for example Capital Gains tax.
“No doubt the rumour mills will go into over-drive ahead of the Spring Budget around the future of IHT, but one thing is clear, as of today, IHT isn’t just a tax on the wealthy, due to rising house prices and frozen tax bands.
“It’s important to start planning now. Some simple measures could make all the difference, for example selling down assets that are liable for CGT before April, or making full use of spousal allowances by transferring the ownership of assets.”