Inheritance tax receipts hit £3.9 billion between April and September 2023, up £0.4 billion on the same period of last year, as rising property prices and frozen IHT thresholds forced more people into the net.
The figures from HM Revenue & Customs revealed that June 2023 was the highest monthly total on record.
HMRC said the rise in receipts follows the Chancellor’s decision to freeze IHT thresholds until at least April 2028, while higher property prices have upped the number of households falling into the scope of IHT. The value of the average UK home now sits at almost £291,000 in August 2023, with the average much higher in the South of England.
The rising tax take will likely push the ongoing debate around IHT firmly into the spotlight ahead of next year’s general election, say industry experts. The Office for Budget Responsibility previously forecast that IHT will raise £7.2 billion this financial year and as much as £8.4 billion in 2027/28. However, the latest figures suggest tax receipts could exceed these estimates.
Rosie Hooper, chartered financial planner at Quilter, said IHT will cause a “conundrum” for the government, as it continues to split voters.
Hooper said: “This shines a light on why both political parties are currently making IHT a battleground policy in the run up to an election next year. This increasing revenue causes a conundrum for the government as IHT is an emotive tax that can split voters. Labour is rumoured to be looking at removing Business and Agricultural Property relief but by doing so they risk having a huge impact on the AIM market and damaging investment into UK plc.
“There is no doubt that IHT needs thoughtful reform but either political party needs to ensure that they do not create unintended consequences. Financial planners can help people manage their tax affairs to optimise their money in this nuanced fiscal landscape and this is particularly true for taxes like IHT. The rules and restrictions surrounding aspects such as the residence nil rate band can be difficult to navigate, and with an increasing number of people facing unexpected IHT bills, speaking to a financial planner is key to ensuring you plan effectively and mitigate unnecessary costs.”
Laura Hayward, tax partner at Evelyn Partners, described IHT as the “gift that keeps on giving” as the Treasury looks to bolster its coffers ahead of the Autumn Statement next month.
Hayward said: “The prospect of abolishing IHT has been bounced around as an idea for a Conservative election manifesto pledge and while the Chancellor has been playing down the prospect of imminent tax cuts, it’s not impossible that he could pull a small IHT rabbit out of the hat at the autumn statement, with something like a raising of the nil-rate band.
“An immediate concern for many families is that more and more are being dragged into paying IHT by stealth as a result of a number of factors, including allowances being frozen until at least 2028 and inflationary growth of asset values.”
Hayward said families should take steps to minimise an IHT bill through the use of gifts to family members of investing tax-efficiently. Gifts made to other individuals are generally not subject to IHT unless the person dies within seven years. There is also an annual gift allowance of up to £3,000 per tax year, and this will not be subject to IHT even if the person dies within seven years.
