HM Revenue & Customs data has revealed that a record amount of £7.5billion in Inheritance Tax was paid to the Treasury in the 2023/24 tax year.
Total receipts for April 2023 to March 2024 were £0.4billion greater than the all-time high of £7.1billion in 2022/23, a rise of 5.6%
Laura Hayward, Tax Partner at Evelyn Partners, highlights the concerning trend of escalating Inheritance Tax (IHT) revenues for the Treasury, attributing it to the prolonged freeze on tax-free allowances dating back to 2009. With the average UK house price surging by approximately 82.7% during this period, the stagnant nil-rate bands inevitably lead to heightened IHT liabilities.
What’s more, Hayward underscores the impending intergenerational wealth transfer, with older generations holding an estimated £2.6 trillion in home equity poised to be inherited by future generations. The Office for Budget Responsibility’s projection of IHT receipts reaching £9.7 billion by 2028/29, doubling as a percentage of GDP since 2009, reinforces this concern. This surge in revenues, attributed mainly to asset price inflation and stagnant thresholds, signifies a substantial fiscal drag. As the freeze persists, the burden of IHT is poised to intensify, posing significant implications for taxpayers and estate planning alike. She continued:
“Even without an exceptional transfer of wealth, more estates and more assets in each liable estate are being dragged over the threshold at which IHT kicks in as the value of financial assets and property increases. The modest property downturn of the last year or so, which missed some parts of the UK entirely, seems be over – so with the residential nil-rate band also frozen at £175,000, the trend of families or individuals with modest levels of wealth mostly held in property being subject to this 40% tax will continue.
Against this background, the crackdown on IHT exemptions suggested by the IFS last week would be an unwelcome hit to bereaved families. The IFS points towards ‘loopholes’ like business property relief that could potentially raise £2billion for the Treasury if ‘closed’ – but one person’s loophole is another’s legitimate exemption.
It isn’t the so-called boomer generation, wealthy or otherwise, who will foot the IHT bill on their estates – it’s their potentially struggling children and grandchildren who could be parted from a big chunk of the hard-earned family savings. Any future government tempted to fill gaps in the public finances by increasing the IHT burden further will have to reckon with the deep-seated aversion that most households have towards the imposition of death duties.”
Commenting on IHT receipts rising by £400 million, John Glencross, CEO and Co-Founder of Calculus, said that IHT revenues continue to steadily rise due to the “prolonged freeze on IHT thresholds until at least April 2028”. He added:
“March’s Spring Budget did not address IHT, therefore it is a financial planning issue that will not go away soon. One effective method to mitigate IHT for advisers and investors is through an Enterprise Investment Scheme (EIS) fund. The EIS offers inheritance tax relief, contingent upon holding shares for at least two years and at the time of death. At Calculus our EIS not only offers investors opportunities for a diversified and tax-efficient portfolio but also enables them to support innovative UK companies with a strong societal purpose and impact.”
In a recent article from the express, the Institute for Fiscal Studies (IFS) proposes reforms to inheritance tax (IHT) aimed at generating £3 billion annually. It suggests eliminating several exemptions to the tax, potentially reducing the amount of wealth individuals can pass on to their heirs. These exemptions include pension scheme tax relief, the transfer of agricultural property, and ownership of certain types of shares.
Advocates argue that removing these exemptions, commonly utilised by the affluent with estates exceeding £10 million, would promote fairness in IHT. Last year, the Treasury collected £7 billion from British estates, but the IFS predicts a significant increase in future revenues if these reforms are implemented.
