IHT receipts £0.4 billion higher than same period previous year

HM Revenue and Customs revealed that inheritance tax (IHT) receipts for April to December 2023 were £5.7 billion, which is £0.4 billion higher than in the same period the previous year.

The increase of 7.5% means the Treasury is on course to take record receipts of about £7.6billion from IHT in the 2023/24 tax year, after surging to an all-time high of £7.1bn in 2022/23 – a £1billion increase on 2021/22.

Lower receipts in April and May 2020 were due to a temporary issue where HMRC were unable to accept cheques for payment of IHT due to COVID-19, which was resolved, hence the peak in June 2020 receipts. Higher receipts from March 2022 are expected to be due to a combination of higher volumes of wealth transfers following recent IHT-liable deaths, recent rises in asset values, and the government’s March 2021 and Autumn 2022 decisions to maintain the IHT tax free thresholds at their 2020 to 2021 levels up to and including 2027 to 2028, and more information on these decisions are available in the policy papers accompanying the Budget 2021 Finance Bill and the Autumn Finance Bill 2022.

The higher receipts in June 2022, November 2022, June 2023 and October 2023 can be attributed to a small number of higher-value payments than usual

Commenting on the findings, Laura Hayward, Tax Partner at professional services and wealth management firm Evelyn Partners, said that IHT is harvesting more in revenue than “was ever forecast” as “rising house prices and growth in investment assets have boosted the value of estates over the last couple of decades”. She continued:

“This has drawn more estates, and more assets in each liable estate, over the threshold at which IHT kicks in, which has been frozen at £325,000 since April 2009. Modest property downturns as we have seen in the last year or so will do little to dent this trend. In recent years there has also been a Covid effect on mortality which has further increased the overall IHT take.

Despite being paid by a small proportion of estates, IHT is widely unpopular and continues to attract attention as one of the taxes the Chancellor could look to cut at his spring Budget, in an effort to boost the Conservatives’ electoral outlook. Speculation has focused on a cut to the 40% rate, as it did before the Autumn Statement, but a raising of the nil-rate band would do more to protect families with more modest estates who are being drawn into paying IHT. Property and investments tend to rise in value over the long-term so if nothing is changed, more of households’ carefully saved assets will surge above the NRB – which would now stand at £489,700 had it risen with inflation since April 2009.

Ironically of course, it’s the fiscal drag effect across the board of taxation that could end up giving Jeremy Hunt the headroom to cut taxes this spring, as frozen allowances and bands look set to take more tax revenue from rising income and wealth in the coming years, and that in turn improves the outlook for the public finances.”

Shaun Moore, tax and financial planning expert at Quilter said that the speed of increase “should start to slow down from February as new data will feed through following the 2% cut to National Insurance from 12% to 10% for the main rate of Class 1 employee NICs announced at the recent Autumn Statement”. He added:

“The cut to NI will allow basic rate taxpayers to save a maximum of £754. That said, a drop is unlikely given that other thresholds remain frozen causing there to be a historically high tax burden alongside inflation driven wage growth. Rumours are swirling that a more significant cut to income tax or another NI cut is in the offing as the government tries to woo voters as we head into this election year. This change may cause tax revenues to drop more significantly if it does come to fruition.

Inheritance tax was also an area that was rumoured to be abolished at the Autumn Statement but never materialised. However, given that inheritance tax receipts for April 2023 to December 2023 are £5.7 billion, which is £0.4 billion higher than the same period last year, it may prove hard for the government to opt to go so far given that it impacts a relatively small pool of people but brings a reasonable amount of tax revenue.

Abolition of IHT would certainly split voters and it’s likely that Labour would fairly rapidly vow to bring it back into force if they were to get in. This could therefore become a serious area of contention over the following few months if the Conservative party is minded to push ahead with abolition. Regardless of which political party gets into government, simplification of IHT is certainly overdue.”

What’s more, Hayward said that an IHT cut would have “little immediate impact on households’ financial situation”. She continued:

“It’s perhaps more likely that a pledge on inheritance tax will feature in the Conservative manifesto rather than in the Budget – particularly as it might appeal to and motivate some of the party’s core voting demographic.

In the meantime, there are various steps that can be taken to reduce a future IHT liability. It’s invariably a good idea to keep an up-to-date Will to ensure first that one’s assets are distributed as desired, and second that an unnecessary IHT liability is averted.

With the end of the tax year fast approaching, some savers will want to use their annual gifting allowances before they expire, as gifting will help to reduce the size of an estate – perhaps even taking it below the NRB. Likewise, as defined contribution pension pots are very IHT-efficient, some savers might look to use up their annual pension allowance with extra contributions.”

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