Tax receipts continued to climb between April and August 2024, stoking speculation that IHT could be seen as a soft target for a further tax raid in the Autumn Budget next month.
The latest figures from HM Revenue & Customs showed gross tax and National Insurance Contribution receipts for April to August were £342.2 billion, up £8.9 billion on the same period last year.
Income tax, capital gains tax and NICs receipts for the period reached £194.4 billion, which was £5.4 billion higher than the same period last year, HMRC said.
Shaun Moore, tax and financial planning expert at Quilter, said: “Labour has repeatedly pledged not to increase taxes on working people, but the combination of frozen income tax thresholds and wage growth continues to push more and more people into higher tax brackets, boosting government coffers in the process. With thresholds frozen until 2028, Labour’s pledge will be significantly watered down as more people are dragged into paying more tax regardless.”
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, expressed a similar sentiment.
“When you factor in that National Insurance rates have actually been cut back quite substantially in recent times it makes you wonder about how much bigger the tax take could have been. It does, however, show the impact of frozen tax allowances in steadily increasing the amount people have to pay. Unless the government decides to end the freeze, we’ve got several more years of this stealthy tax grab to deal with,” she said.
The figures also showed inheritance tax receipts climbed to £3.5 billion in April to August, an increase of £0.3 billion year-on-year, prompting speculation that the government could make changes.
Moore said: “As Labour navigates the complex issues surrounding IHT in the upcoming budget, there is a strong argument for simplifying the IHT system and making it more appealing to gift during one’s lifetime. The complexity of the current system often leads to confusion and inequities. A simpler system could help reduce the administrative burden for both taxpayers and HMRC, while also making it fairer. Similarly, increasing the gifting threshold would encourage earlier wealth transfer, reducing future IHT liabilities and could boost consumer spending.”
Laura Hayward, tax partner at Evelyn Partners, commented: “It’s by no means certain that the Chancellor will target the transfer of wealth to raise more tax revenue, but if she does then including defined contribution pension pots in the value of estates for IHT purposes seems to be the front-runner in the line-up of possible changes.
‘The latest IHT salvo in the great Budget debate has been fired by the Resolution Foundation, which urged the Chancellor to abolish the £175,000 residence nil-rate band on October 30, in order to save the Treasury an estimated £2billion.”
The think-tank said there was “a good case” for scrapping the RNRB, which means that homeowners who are leaving their main residence to a direct descendant can shield an extra £175,000 of their wealth, on top of the main £325,000 NRB available to everyone, from IHT. It follows speculation that the Chancellor could also look to change the seven-year rule on gifting.
Alastair Black, head of savings policy at abrdn, warned that any change could have “serious ripple effects” for people.
Black commented: “With no reform in sight, families are bracing to fork out over £8 billion in inheritance tax this year alone. Rumours are swirling that pensions might be pulled into the IHT net, or that Rachel Reeves could slash gifting allowances and reduce IHT relief on businesses and agricultural land.
“Any changes like this could have serious ripple effects, scaring off much-needed investment or throwing a wrench into the plans of people who’ve based their finances on today’s rules. So we will need to see potentially complex transitional reliefs too. Whatever the Chancellor announces, one thing is certain: we need to see a simpler, fairer IHT system that cuts through the confusion and brings some much-needed clarity to a tax that’s spiralling out of control.”
