Inheritance Tax receipts for April 2024 to July 2024 are £2.8 billion, which is £0.2 billion higher than the same period last year, HM Revenue and Customs revealed.
Laura Hayward, Tax Partner at professional services and wealth management firm Evelyn Partners, said that annual rises in inheritance tax paid are “pretty much a given these days”. She continued:
“…as property and financial market assets continuing to rise in value, and IHT allowances remain frozen. Inevitably, as more estates find they exceed the nil-rate bands, and more assets in each liable estate become taxable, the IHT take creeps upwards. With no complaints on that from the Treasury, there is little incentive for the Chancellor to halt this trend.
Rather, there will be a temptation to capitalise on it to fill gaps in the public finances. Senior Labour figures have made it clear they think certain reliefs – specifically business and agriculture property relief – are too generous and think-tanks seem keen that defined benefit pension pots are brought into the remit of IHT. We already know that the new Government will crack down on ‘abuse’ of reliefs and that can easily lead to a review of the reliefs themselves.
So Rachel Reeves’ first big fiscal statement on 30 October will be closely watched for any review into IHT reliefs, or suggestion that pension pots could be deemed part of a deceased’s estate.”
Rachael Griffin, tax and financial planning expert at Quilter said that the increase, ahead of first Labour’s first autumn budget, will “rekindle debates about whether this tax will be increased as the government attempts to shore up public finances”. She added:
“At the same time, PAYE income tax and national insurance receipts for April 2024 to July 2024 have climbed to £143.4 billion—an increase of £2.3 billion compared to the same period last year. While Labour has pledged not to raise taxes on working people, the ongoing freeze on income tax thresholds, combined with wage growth, is pushing more individuals into higher tax brackets, further driving up these receipts. While it’s unlikely that there will be any changes to the thresholds at the budget this is not a situation that can run and run and its pledge to not tax working people becomes less meaningful as more people who don’t consider themselves wealthy pay higher rate tax.
Speculation is rife that the Chancellor might introduce changes to IHT, particularly targeting Agricultural Property Relief (APR) and Business Property Relief (BPR). These reliefs, which currently allow farms and family businesses to be passed down without incurring prohibitive tax liabilities, might be scaled back. Labour might opt to remove APR for those who do not actually own farmland and BPR where it doesn’t meet the intention of the relief i.e. protecting small businesses being kept ‘in the family’. However, the unintended consequences could be huge especially for the AIM market which relies heavily on the shares being eligible for BPR after holding the shares for two years. This might therefore hamper Labour’s stated aim of getting more investment into UK plc.
As Labour navigates these complex issues in the upcoming budget, there is a strong argument for simplifying the IHT system and making it more appealing to gift during your lifetime. The current system’s complexity often leads to confusion and inequities, with wealthier estates better equipped to navigate and minimise tax liabilities. A simpler system could not only reduce administrative burdens for taxpayers and HMRC but also make the tax fairer. Increasing the gifting allowances also would encourage more wealth to cascade down the generations.”
Hayward added:
“IHT is also likely to be a growth area for Treasury revenues in the coming years for another reason. With the baby boomer generation now hitting their sixties and seventies, some of that generation’s accumulated wealth is being passed on to children and grandchildren, and getting taxed on the way. The ‘great wealth transfer’ is also underway because many of the older, asset-rich generations are making lifetime gifts to their families. As the wave of inheritance is set to grow over the next 30 years to a transfer of £5.5trillion, the temptation for successive Governments will be to tap into it to plug gaps in the public finances.
The Office for Budget Responsibility forecasts that the share of deaths resulting in the payment of inheritance tax will rise to 6.3 per cent by 2028–29, the highest level since the 1970s. That proportion was as low as 2.7 per cent in 2009/10. Revenue from inheritance tax and its predecessors has increased over time in real terms, from around £2billion in 1980/81, to £7.5billion in 2023/24, and will reach almost £9billion by 2028/29 (all amounts in 23/24 prices).”
Griffin said that simplifying IHT “could involve increasing the nil rate band”. She continued:
“…which has remained static for over a decade, or potentially lowering the headline IHT rate in exchange for eliminating or reducing complex reliefs. Such reforms could make the system fairer, particularly for middle-income families who increasingly find themselves liable for a tax originally intended for the very wealthy.
As the debate on IHT reform continues, the upcoming budget will be crucial in determining whether Labour chooses to maintain the current complex reliefs or pivot towards a simpler, more equitable system that better reflects modern economic realities.”
