Receipts from Income Tax and National Insurance payments from April to November 2022 reached £251.4bn – an increase of £31.8bn compared to the same period a year earlier.
While HMRC has said the spike in receipts in November 2022 is due to a small number of higher-value payments than usual, the rise “will no doubt be music to the Chancellor’s ears as just last month he announced Income Tax thresholds would be frozen until 2027/28, and this growing source of government income will only rise as the years progress”, said Rachael Griffin, tax and financial planning expert at Quilter
Inheritance Tax (IHT) thresholds also have been frozen until 2027/28. IHT receipts from April to November 2022 were £4.8bn, an increase of £0.6bn compared to the same period a year earlier.
“Inheritance Tax is fast becoming a profitable area for the government, largely due to the rapid rise in house prices seen in recent years causing more people to tip over the threshold,” said Griffin.
“Despite this, just last week the Institute for Fiscal Studies called for reform to the tax treatment of pensions on death on the grounds of fairness as it deemed pensions to be ‘a highly effective way of avoiding inheritance tax’, but such reform would likely only make things fairer for the exchequer and not for bereaved families. Making pensions subject to IHT would be counter-intuitive to encouraging people to save for their retirement, and with the lack of certainty on the direction of social care it is crucial that people continue to put their own financial plans in place.
“Given IHT thresholds have already been frozen, more and more people will already be dragged into paying what is often regarded as one of the nation’s most hated taxes, let alone if pensions were to be brought into the mix. IHT has traditionally been viewed as a tax on wealthier individuals, but the number of people caught in the IHT net has been rising steadily for some time now and this number will only continue to rise as we move further into the freeze.”
Andrew Tully, technical director at Canada Life added, “Financial advisers will be helping by discussing estate planning solutions with clients and their wider families. Engaging early with good planning can help to reduce or mitigate IHT so it’s essential anyone who considers IHT to be an issue should be seeking expert advice now.”
