HM Revenue & Customs raked in a record £1.8 billion in inheritance tax receipts in the final three months of 2022 amid rising house prices.
The latest figures show IHT receipts for December reached £545 million, up from £474 million year-on-year.
Between April and December, receipts totalled £5.3 billion, a jump of £700 million on the previous year, placing HMRC on track for another record-breaking year.
It follows Chancellor Jeremy Hunt’s decision in his Autumn Statement to freeze the IHT threshold of £325,000 for a further two years to 2027/28 in a bid to fill government coffers.
Stephen Lowe, group communications director at Just Group, said the extended freeze will see HMRC raise nearly £8 billion a year in inheritance tax by 2027/28.
Lowe said: “The combination of the freeze on the nil-rate band and rising property prices continues to funnel more inheritance tax into government coffers, especially in regions where house prices are far higher than the rest of the country.
“It is yet another reminder for people of the importance of regularly assessing the value of their estate which includes getting an up-to-date valuation of any owned property.”
Higher property prices in London and the South East have resulted in more estates paying IHT in these regions, with a freedom of information request by Just Group revealing that property accounted for 50% of the wealth in London estates paying IHT, compared to 32% for the rest of the UK.
Experts warn that further house price rises through the pandemic are likely to have tipped many more estates over the IHT threshold, often without homeowners realising.
Shaun Moore, tax and financial planning expert at Quilter, commented: “Runaway house prices and stagnant thresholds mean more people are dying with property wealth over the various inheritance tax allowances.
“Although house prices are expected to drop over the next year, recent data from Halifax revealed that over the past 40 years house prices have gone up a staggering +974%. This means that many people have seen their properties go up enormously in value and while they might not consider themselves wealthy, they will end up paying inheritance tax which is typically viewed as a tax for the very affluent.”
Tax experts say advisers and investors should consider the range of tax-efficient vehicles available to mitigate the effects of IHT.
According to John Glencross, CEO and co-founder of Calculus: “One area that advisers and investors could consider is investing in an Enterprise Investment Scheme, as full inheritance tax relief is provided for the life of the investment once the shares have been held for two years.”
Andrew Aldridge, partner at Deepbridge Capital, added: Given the Chancellor’s freezing of IHT thresholds for a further two years and inflation remaining high, we anticipate that HMRC receipts will continue to rise in the near term. It is vital in 2023 for investors and financial advisers to engage in prudent financial planning to enable many individuals in or approaching retirement to mitigate this tax on their estate providing some financial peace of mind.
“Our recent research suggested that Business Relief investments have become an increasingly common tool used by financial advisers and we expect this demand to continue to grow.”
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