The government raked in £6.4 billion in inheritance tax receipts between April 2022 and February 2023, up 0.9% on the previous year, latest government data show.
Figures from HM Revenue & Customs revealed that inheritance tax receipts totalled £531 million in February alone.
It comes a week after the Office for Budget Responsibility estimated that the government would net nearly £3 billion more than previously estimated. The projection would take the total amount raised by 2027/28 to £45 billion, compared to the previous estimate of £42.1 billion.
In November, Jeremy Hunt announced that the nil rate band, set at £325,000 since April 2009, would remain frozen until at least April 2028, despite inflationary pressures. The almost twenty-year freeze, coupled with rising property prices, has seen a growing number of families become liable for IHT.
Stephen Lowe, group communications director at Just Group, said the Chancellor was benefitting from the “pincer movement” of recent rises in property prices and frozen thresholds.
Lowe said: “Inheritance Tax is an increasingly valuable source of income for the government which has raked in a record sum even with one month of this tax year’s receipts yet to be collected.
“The Treasury appears to be banking on ever greater receipts from Inheritance Tax. Buried in the small print of the Spring Budget was confirmation that the government expects to scoop up nearly an extra £3 billion from Inheritance Tax over the next six years. In total, the tax is set to add £45 billion to government coffers and by the end of that period around one in every 15 deaths is expected to trigger an IHT charge.”
Lowe warned that with an ever-growing proportion of estates likely to become liable to pay IHT, people should be regularly assessing the value of their estates, particularly in the wake of the pandemic which saw house prices jump considerably.
Laura Tommis, business and relationship development manager at ZEDRA, echoed the statement: “It is not surprising that many families who have not considered themselves wealthy or thought their estates could be within the remit of IHT have been dragged into the statistics.
“Whilst the housing market, which has historically contributed to increase in IHT receipts, has slowed down recently, stagnant tax thresholds and inflation have resulted in more estates now being liable for IHT than before. With both the Nil Rate Band and Residence Nil Rate Band allowances frozen until 2027/28, it is inevitable that this trend will only continue.”
Shaun Moore, tax and financial planning expert at Quilter, commented: “Given house prices are still yet to see the dramatic fall predicted, far more people who may not consider themselves wealthy could be caught by the IHT net as their property value has grown significantly in recent years. With more people facing an unwelcome – and in some cases unexpected – IHT bill, seeking professional financial advice where possible will be vital.”
Tax experts recommended that people consider ways to mitigate their liability, including lifetime gifting into trusts and Enterprise Investment Schemes which offer full IHT tax relief once the shares have been held for two years.
In addition to IHT, HMRC figures also revealed the Chancellor’s decision to freeze income tax thresholds had boosted government coffers.
Receipts from PAYE Income Tax and NIC1 for April 2022 to February 2023 were £344.3 billion, which was £38.1 billion higher than in the same period a year earlier.
Moore said: “While this increase is significant, it is not surprising. The rising cost of living has triggered an uplift in pay and many will have started paying income tax for the first time or moved into a higher rate as a result.”
With inflation remaining in double digits and wage growth at 5.7%, Moore said income tax will continue to provide a boost for the government, particularly with the introduction of the additional rate tax threshold reduction from £150,000 to £125,140 on 6 April.
Moore added: “While the Chancellor made no real mention of personal taxes during his spring Budget, having already made his announcements in November, he increased the pensions annual allowance. For those on the cusp of a higher tax band or looking to lower their income tax bill in general, exploring the option of paying more into their pension where possible could be highly beneficial.”
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