HM Revenue & Customs is on track to rake in record inheritance tax receipts this year, as rising property prices and frozen thresholds capture more people.
Figures released by HMRC show that IHT receipts for April 2023 to February 2024 totalled £6.8 billion, up £0.4 billion on the same period last year.
The government said the rise in receipts is a result of higher volumes of wealth transfers, combined with recent rises in asset values and the government’s decision to freeze IHT tax-free thresholds at their current levels up to 2027/28.
The latest figures leave the Treasury on course to collect record sums this year, beating the previous all-time high of £7.1 billion in 2022/23.
Stephen Lowe, group communications director at Just Group, said: “With one month of the financial year to go, inheritance tax looks certain to record another all-time receipts high.
“Despite speculation that the Chancellor would tinker with Inheritance Tax in the Spring Budget it was left alone and with public finances so tight it is little wonder. Frozen thresholds and the increase in property values have dragged more estates into paying the tax and we would encourage people to assess the entire value of their estate.”
Laura Hayward, tax partner at Evelyn Partners, said the impact of inheritance tax is set to grow, with a massive transfer of wealth expected to occur in the next couple of decades. Research has shown that older generations have as much as £2.6 trillion of equity tied up in their homes.
Hayward said: “Even without a wave of wealth being transferred, more estates and more assets in each liable estate, are being dragged over the threshold at which IHT kicks in, which has been frozen at £325,000 since April 2009. The modest property downturn of the last year or so seems be over, so with the residential nil-rate band also frozen at £175,000, the trend of families or individuals with modest levels of wealth mostly held in property being subject to a 40% tax is likely to continue.”
Hayward urged people to take advantage of annual gifting allowances to reduce IHT liability.
“Unlike ‘potentially exempt transfers’, which could become liable to IHT if the donor dies within seven years, gifting within the annual allowances automatically leaves the estate. It is a good idea though to keep clear records to satisfy any enquiry from HMRC.“Moreover, as defined contribution pension pots are very IHT-efficient, some savers might look to use up their annual pension allowance with extra contributions.”
The latest HMRC tax receipts data also show Insurance Premium Tax (IPT) collected a total of £1.5 billion in February. This takes the total collected through the first 11 months of the Financial Year to £8.1 billion and setting a record annual total with one month of receipts still to come.
It marks the third successive year in a row that IPT has hauled in all-time high receipts, surpassing last year’s total of £7.3 billion.
Cara Spinks, head of Insurance Consulting at actuarial consultancy OAC, commented: “With tax receipts still to be collected for one month of the Financial Year, IPT has nonetheless already exceeded all previous annual records.
“The bumper tax haul demonstrates both the importance of the tax to the Exchequer as well as the impact that rising insurance premiums are having on household budgets. Many will have felt the financial squeeze when renewing policies, which is adding to the increase in IPT receipts.”
