HMRC’s IHT receipts up as more estates must pay tax

22 November 2021

Inheritance tax receipts rose by £0.6 billion in the first half of the 2021/22 tax year compared to the same period a year earlier, as more estates become eligible to pay tax, the latest figures from HM Revenue & Customs has revealed.

Government data showed that £3.6 billion was collected between April and October 2021.

While the rise in receipts was marginally lower than last month’s increase of £0.7 billion, experts said the general trend showed IHT receipts continue to rise, fuelled by soaring house prices.

Andrew Gillett, head of wealth management advice at BRI Wealth, said: “Although there is a modest fall in IHT receipts in the last couple of months, the general trend is that IHT tax receipts continue to rise. This has certainly been the trend over the last few years and not a surprise bearing in mind the rise in equity and house prices since the lows at the start of the pandemic coupled with the freezing of allowances.

“We were surprised to not see any legislative changes in the recent budget when you consider the government continues to need an uplift in revenue. It is likely more families will pay inheritance tax in the coming years due to the freezing of allowances until 2026 and there may be further reforms to come. We think it is likely that we will see reform; it is just difficult to know when.

“There are many ways to legally mitigate inheritance tax including making gifts to your family, taking out insurance, using various types of trusts or investing in qualifying assets. The important thing is that families don’t sleep walk into paying this tax and take advice in good time to ensure planning is effective.”

Shaun Moore, tax and financial planning expert at Quilter, echoed the sentiment: “One factor likely contributing to the increase in IHT receipts is the soaring housing market. Despite the stamp duty holiday drawing to a close at the end of September, the race for space continues. With inheritance tax thresholds frozen, which is viewed as a stealth tax rise, more people will be facing IHT bills following the sales of their homes.”

For this tax year, an individual can pass on £175,000 of their property tax-free, which is doubled to £350,000 when combined with the allowance of a spouse or civil partner. This is in addition to the inheritance tax allowance of £325,000 meaning it is possible for couples to pass on £1 million inheritance free. However, it only works for those with direct descendants to inherit the family home, while those co-habiting cannot claim the same allowance.

Moore added: “There are other ways to reduce your inheritance tax exposure, such as gifting to family members. In addition, there is no limit on excess income – above expenditure – that can be gifted.

“Unfortunately, gifting allowances have failed to keep up with inflation, and the currently soaring inflation rates will do little to help matters in terms of IHT bills. If required, you could also consider more significant gifts which would be Potentially Exempt Transfers or Chargeable Lifetime Transfers, but these will take seven years to see the IHT benefit. As well as reducing the taxable estate value, gifting is particularly useful for estates impacted by the RNRB taper as the gifts can immediately reclaim the extra band.”

Andrew Aldridge, partner at Deepbridge Capital, said the figures suggested that not enough people were taking advice.

“It shows how easy it is for individuals and couples to generate a potentially large inheritance tax bill when they die, despite not being what they may perceive as ‘wealthy’. Despite a majority of financial advisers telling us that inheritance tax is a primary financial planning consideration, these latest figures clearly show that many individuals are still not seeking the advice which can make it possible to pass on more of their wealth to their family.”

According to research from Deepbridge Capital, 76% of advisers believe that their use of business relief propositions will increase over the next two years, with less than 2% expecting their use of the tax solution to decrease.

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