IHT becomes ‘mainstream tax on ordinary people’ as receipts hit new record

Record inheritance tax (IHT) receipts across the previous financial year have led to suggestions that the measure has now become a “mainstream tax on ordinary people”.

The total take for 2022-2023 reached £7.1 billion, according to new data from HMRC. This surpasses the previous record of £6.1 billion set last year by £1 billion as the tax continues to provide a lucrative source of revenue for the Treasury.

This comes as estimates at the Spring Budget suggested that over the next five years Inheritance Tax would bring in £38 billion pounds – meaning annual receipts would be set to exceed £8 billion by 2027-28 and 6.7% of deaths would trigger an IHT charge.

“IHT is no longer a tax only on the wealthiest estates,” said Andrew Tully, technical director at Canada Life. “As these record figures show, IHT has now become a mainstream tax on ordinary people, largely due to house price increases.”

This is reflected in data released on Friday morning by HMRC which revealed the number of individuals paying IHT has increased by 24% compared with the previous tax year. David Gibb, chartered financial planner at Quilter, said:

“It is now the highest in 20 years with 41,000 people liable to IHT compared to 33,000 the year prior. It is also nearly double what it was in the 2018/19 tax year when only 22,000 people paid IHT. Separate statistics recently showed that IHT receipts from April 2022 to March 2023 reached a record breaking £7.1bn, far surpassing the £6.1bn inheritance tax take in the 2021-22 tax year with a £1.0bn increase…

… Many individuals who were once considered ‘middle class’ are now finding themselves liable for inheritance tax, which was typically seen as a tax for the wealthy, simply due to the appreciation of their properties’ values.”

Tully’s sentiment was reflected by Rachael Griffin, tax and financial planning expert, Quilter, who said the extended IHT threshold freeze is “already raking in a significant amount by stealth”. She continued:

“Historically, IHT was viewed as a tax only for the very wealthy. However, with house prices remaining at such elevated levels while both the nil rate band and residence nil rate band are frozen until 2028, many families that might not consider themselves to be wealthy could find themselves facing an unexpected IHT bill.”

Griffin did, however, suggest that Westminster party politics may force the government’s hand sooner rather than later:

“The ever-increasing tax revenue from IHT presents a conundrum for the government as we approach election season.

Rumours are already rife regarding potential crowd-pleasing policy changes the government might enact to improve their chances of winning the next election. Some reports suggest inheritance tax may be ripe for reform.”

Stephen Lowe, group communications director at retirement specialist Just Group, commented:

“There seems to be no limit to the Treasury’s appetite for Inheritance Tax and given receipts for this financial year have already surpassed upgraded estimates, it looks set to be the goose that lays golden eggs for some time yet.”