Inheritance Tax (IHT) receipts for April 2024 to August 2024 are £3.5 billion, which is £0.3 billion higher than the same period last year, HM Revenue and Customs reported.
Laura Hayward, Tax Partner at Evelyn Partners, said that the rising IHT receipts are a “fact of life” for the Treasury but at the current rate of 9.4% on the year they “aren’t rising fast enough to help fill the ‘black hole’ that the Government says it has identified in the public finances”. She added:
“It’s by no means certain that the Chancellor will target the transfer of wealth to raise more tax revenue, but if she does then including defined contribution pension pots in the value of estates for IHT purposes seems to the front-runner in the line-up of possible changes.
The latest IHT salvo in the great Budget debate has been fired by the Resolution Foundation, which this week urged the Chancellor to abolish the £175,000 residence nil-rate band on October 30, in order to save the Treasury an estimated £2billion. The think-tank said there was “a good case” for scrapping the RNRB, which means that homeowners who are leaving their main residence to a direct descendant can shield an extra £175,000 of their wealth, on top of the main £325,000 NRB available to everyone, from IHT.”
Tim Snaith, Partner at Winckworth Sherwood, said:
“IHT revenues continue to steadily rise due to the prolonged freeze on IHT thresholds. The nil-rate band (NRB) and the residence nil-rate band (RNRB) have not been adjusted for inflation or rising property values, which means more estates are becoming liable for the tax as asset values increase.
It remains a persistent and unavoidable inheritance tax planning issue, and one that should not be ignored. To avoid unexpected financial burdens, it is crucial for individuals to regularly review their wills and estate planning, with professional legal advice, to manage their wealth efficiently.”
Paul Barham, Partner at Forvis Mazars said that IHT is the “talk of the town”. He continued:
“Frozen thresholds and increasing asset prices have added to the treasury’s finances. Now everyone is wondering what’s next.
Radical changes to the headline rate or the nil rate bands seem unlikely but taxing gifts over a certain amount or imposing a lifetime gifting allowance could be on the cards. While knee jerk changes are never wise, families wary of potential changes, who are already planning, should make use of the allowances available under the current system.”
Figures from HMRC that Evelyn Partners obtained recently by an FOI request revealed that a rapidly increasing number of families are being caught out by IHT bills after death on gifts made during lifetime. Hayward said:
“The number of estates that paid IHT on gifts made less than seven years before death more than doubled from 590 in 2011/12 to 1,300 in 2020/21, according to the data. Meanwhile, the total sum of IHT paid on gifts also more than doubled from £101 million in 2011/12 to £256 million in 2020/21 – an increase of 153% in monetary terms and 119% in real terms. The data suggests the average tax charge payable by beneficiaries on lifetime gifts was £171,186 in 2011/12 and £196,923 in 2020/21.
That suggests some very significant tax bills are being delivered to unprepared beneficiaries after their generous relative has died, and this might be another reason for those contemplating making big lifetime gifts to start the seven-year clock ticking sooner rather than later. Even if the gifter were to pass away within seven years, there is a chance the IHT bill could be reduced by taper relief.”
