Inheritance tax receipts are on track to reach record levels amid rising house prices and growth in investment assets, prompting increased speculation around the political will to make changes or abolish it altogether.
Latest HMRC data shows receipts from April to December 2023 were £5.7 billion. This marks a £0.4 billion increase on the same period of the previous year.
Laura Hayward, tax partner at Evelyn Partners, said inheritance tax is “harvesting more in revenue” than was ever forecast, with rising property prices boosting the value of estates over the last couple of decades.
“This has drawn more estates, and more assets in each liable estate, over the threshold at which IHT kicks in, which has been frozen at £325,000 since April 2009,” said Hayward.
At the current rate of collection, IHT is expected to raise around £7.6 billion for the Treasury in this financial year, far surpassing the OBR’s forecast of £7.2 billion as well as last year’s all-time high of £7.1 billion.
Experts said the latest figures would result in mounting speculation that the government may tamper with IHT ahead of the General Election in a bid to win votes.
Stacey Love, tax and estate planning specialist at Canada Life, said: “No doubt the rumour mills will go into overdrive ahead of the Spring Budget around the future of IHT, but one thing is clear, as of today, IHT isn’t just a tax on the wealthy, due to rising house prices and frozen tax bands.
“While we wait to see, what, if anything the Chancellor has up his sleeve around the future of IHT, early planning can help reduce the liability to this tax by making full use of the available exemptions and gifts to trusts.”
Shaun Moore, tax and financial planning expert at Quilter, expressed a similar sentiment: “As we edge closer to the Spring Budget, which may well be the last this government has in power, statistics like these become ever more important. Inheritance tax was an area that was rumoured to be abolished at the Autumn Statement but never materialised.
“Abolition of IHT would certainly split voters and it’s likely that Labour would fairly rapidly vow to bring it back into force if they were to get in. This could therefore become a serious area of contention over the following few months if the Conservative party is minded to push ahead with abolition. Regardless of which political party gets into government, simplification of IHT is certainly overdue.”
Stephen Lowe,group communications director at Just Group, added: “Inheritance Tax is a useful source of revenue for the government but we may see the Chancellor prioritise political expediency in the coming Spring Budget as we rapidly approach the next General Election.
“Only a small proportion of households are impacted by IHT, but the tax bites deep on those estates affected. Our research suggests there is a low level of understanding around the Inheritance Tax rules and thresholds, with the majority unaware of how much their estate must be worth to incur a tax charge.
“We would encourage people to assess the entire value of their estate, including an up-to-date valuation of their property, and familiarise themselves with the Inheritance Tax thresholds.”
While speculation has focused on a cut to the 40% rate, as it did before the Autumn Statement, Hayward said raising the nil-rate band would do more to protect families with more modest estates who are being drawn into paying IHT.
“As an IHT cut would have little immediate impact on households’ financial situation, it’s perhaps more likely that a pledge on inheritance tax will feature in the Conservative manifesto rather than in the Budget, particularly as it might appeal to and motivate some of the party’s core demographic,” she added.
