Inheritance tax (IHT) continues to soar as rising prices for houses and other assets take more people above the threshold for paying the 40% tax.
New data published today (21 July) by HMRC shows IHT receipts for April to June 2023 were £2bn, which is £0.2bn higher than the same period a year earlier.
In June, HMRC collected £795m of inheritance tax receipts making it the highest monthly total on record. And industry experts have predicted a record-breaking year.
The OBR’s latest forecasts suggest IHT will raise £7.2bn this financial year and as much as £8.4bn by 2027/28.
Julia Peake, tax and estate planning specialist at Canada Life, said: “IHT is the tax gift that keeps on giving, with receipts already firmly on track to break new records.
“With the right financial planning, IHT can be a largely discretionary tax. But many estates have found they have been caught by the IHT tax net through growing house prices, compounded by the freezing of nil-rate and resident nil-rate tax bands.
“The effective use of trusts and gifting, and the right retirement income strategy, can all help minimise the value of your estate when it comes to calculating any IHT liability, ensuring it can be passed on to your beneficiaries as efficiently as possible.”
Stephen Lowe, group communications director at retirement specialist Just Group, added: “The Inheritance tax juggernaut is picking up pace setting monthly and quarterly record highs for the Treasury. In the opening quarter of this financial year, inheritance tax generated around £22m every day for the government’s coffers.
“The frozen thresholds and property price increases during the pandemic are still feeding into the system, so as a result the government looks set to receive more from inheritance tax for the foreseeable future.”
Inheritance tax is a 40% tax that applies to any total inherited assets above the value of £325,000 from a single person, or £650,000 from a couple.
There is an additional threshold if a person is inheriting a property which was the primary residence of the deceased, including up to £175,000 for a single person and £350,000 for a couple.
This tapers away if the property is worth over £2m.
The rise in IHT receipts has been attributed to a buoyant housing market pushing up prices, a complex set of nil rate bands and gifting thresholds that have not been increased in years.
There were rumours that the Sunak government was looking at promising to scrap the tax ahead of the next General Election.
Shaun Moore, tax and financial planning expert at Quilter, said: “Rumours circulated at the weekend that talks are being held at No 10 over whether to abolish inheritance tax ahead of the next general election. However, this morning’s HMRC tax and national insurance receipts illustrate a growing tax take that the government may be reluctant to forgo.”
Moore continued: “IHT is often touted as one of the most hated taxes in Britain, but people should be careful what they wish for when calling for it to be axed. IHT is not the government’s most lucrative tax, but it has increased considerably in recent years as a result of frozen thresholds and higher house prices, so if it were to be scrapped we could expect something to appear in its place in due course.
“A replacement could be a more punitive wealth tax that sees people’s hard-earned money taxed in life rather than after they have passed.
“While scrapping it in its entirety may not be the way to go, IHT is still ripe for reform and the Conservative government is running out of time to drum up support. As such, it may look to gain favour through changes framed as helping more Brits pass on wealth to support the younger generation.
“There are various ways in which they could do this but the simplest would to revise the IHT threshold by absorbing the residence nil rate band into the standard nil rate band and increasing it in line with inflation, or by simply cutting the 40% rate.”
