HM Revenue and Customs today revealed that Inheritance Tax receipts for April 2024 to June 2024 were £2.1billion, which is £83million higher than the same period last year. That is an annual increase of 4.1%.
Rosie Hooper, chartered financial planner at Quilter Cheviot said that the latest HMRC tax receipts reveal a “significant increase” in inheritance tax (IHT) and PAYE income tax and national insurance payments for May to June 2024. She continued:
“Inheritance tax receipts have risen to £2.1 billion, which is £83m higher than the same period last year. This increase continues the strong upward trajectory in IHT receipts over the last few years.
Frozen tax thresholds, which show no sign of thawing under Labour, have failed to keep up with inflation leading to a continuous spike in the IHT take. The current £325,000 nil rate band has remained unchanged since 2009. The residence nil rate band, introduced on a phased basis between 2017 and 2020, potentially provides an additional £175,000 nil rate band, making a total of £500,000, subject to certain rules. Both thresholds are intended to be frozen until 2028.
The Office for Budget Responsibility predicts that by 2028-29, the proportion of deaths leading to the payment of inheritance tax will increase to 6.3% – its highest level since the 1970s, having fluctuated between 2% and 6% for the past forty years. Given these projections, the need for expert financial planning remains crucial. Financial planners can help manage an estate by setting up trusts, making use of gift allowances, and using a pension to pass on wealth to family members in a tax-efficient way.”
Commenting on HMRC IHT receipts rising by £83 million, Tim Snaith, Partner at Winckworth Sherwood, said that IHT revenues continue to steadily rise due to the “prolonged freeze on IHT thresholds”. He added:
“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.”
Laura Hayward, Tax Partner at professional services and wealth management firm Evelyn Partners, said:
“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, weather 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.
One think-tank economist has already urged the new Chancellor to consider bringing defined benefit pension pots into the remit of IHT, ahead of Rachel Reeves’ first big fiscal statement, expected in October. The first Budget from a Labour Chancellor in 14 and a half years will be closely watched for any review into IHT reliefs, or suggestion that pension pots could be deemed part of a deceased’s estate.
The only reference to IHT in this year’s Labour manifesto concerned offshore trusts and non-doms, so it would raise eyebrows if the new Government made a move on IHT just months into their term. Back in March 2010, in the last Labour Budget, the late Alistair Darling said he was freezing the £325,000 IHT Nil Rate Band for another four years – a policy that remained in place under Tory-led Governments ever since, and which has helped the Treasury to tap into more family assets without any unpopular IHT crack-down.
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).”
What’s more, Darran Harrison, wealth planner at Kingswood Group said that the latest figures show the Treasury collected an extra £2.1bn from inheritance tax receipts between April 2024 and June 2024, following over a decade of growth in the housing market and Rishi Sunak’s decision to freeze thresholds, lifting the IHT revenues to an all-time high. He continued:
“The unprecedented rise in tax receipts can be attributed to multiple factors, with one significant driver being the freeze on the inheritance tax free threshold, commonly referred to as the ‘nil rate band,’ until at least April 2028. This coincides with the surge in property prices during the pandemic period, further contributing to the overall increase in tax revenues and resulting in many families across the UK receiving increased IHT bills as more estates are brought into scope.
This tax year, you can pass on £175,000 of your property tax-free, which is effectively doubled to £350,000 when combined with the allowance of your spouse or civil partner. That’s layered on top of your inheritance tax allowance – or nil rate band – of £325,000, meaning it is possible to pass on £1m inheritance tax-free as a couple. Anything above this is taxed at 40%. It is important to stress this only works for those with direct descendants who are set to inherit the family home, while the UK’s in excess of six million cohabitees are less fortunate and cannot claim the combined allowances.
Wealth Advisers can help manage an estate by setting up trusts, making use of gift allowances and using a pension plan to pass on wealth to family in a tax-efficient way. Married couples and civil partners can also make use of each other’s tax-free allowance without special tax planning. Gifts and transfers between married couples and civil partners living in the UK are IHT-free, so if the first partner to die leaves their entire estate to the other, no tax will be payable. It’s also likely that none of their nil-rate band has been used, and the partner will be able to add the unused balance to their own, effectively doubling the threshold. If your partner is not UK-domiciled however, limits can apply, and you should seek advice.”
