Inheritance Tax (IHT) receipts for April 2023 to September 2023 are £3.9 billion, which is £0.4 billion higher than the same period last year, according to HM Revenue & Customs (HMRC).
Lower receipts in April and May 2020 were attributed to a temporary issue that saw HM Revenue and Customs (HMRC) unable to accept cheques for IHT payments due to the COVID-19 pandemic. Fortunately, this issue was resolved, leading to a notable surge in IHT receipts in June 2020.
From March 2022 onwards, IHT receipts experienced a substantial increase. This surge is expected to be the result of several converging factors:
- Higher Volumes of Wealth Transfers: Recent IHT-liable deaths prompted an uptick in wealth transfers, leading to increased tax liability.
- Rising Asset Values: Escalating asset values, including property and investments, contributed to a larger tax base.
- Tax Threshold Maintenance: The government’s decisions in March 2021 and Autumn 2022 to maintain IHT tax-free thresholds at their 2020-2021 levels up to and including 2027-2028 added to the tax revenue.
More detailed information on these decisions can be found in the policy papers accompanying the Budget 2021 Finance Bill and the Autumn Finance Bill 2022.
What’s more, the higher IHT receipts in June 2022, November 2022, and June 2023 can be attributed to a small number of exceptionally high-value payments. These outliers had a substantial impact on the overall revenue during those months.
In June 2023, IHT receipts reached an all-time high, marking a historic milestone. One plausible explanation for this increase is the recent rise in interest rates, which HMRC is now obliged to charge on overdue tax bills following the Bank of England’s base rate hikes.
Rosie Hooper, chartered financial planner at Quilter, said:
“This increasing revenue causes a conundrum for the government as IHT is an emotive tax that can split voters. Labour is rumoured to be looking at removing Business and Agricultural Property relief but by doing so they risk having a huge impact on the AIM market and damaging investment into UK plc.
The Chancellor has extended the IHT threshold freeze until at least April 2028, and it is looking likely to rake in record amounts by stealth in the meantime. The problem lies in the fact that higher property prices have upped the number of households falling in the scope of IHT, and while growth has slowed in the housing market, we are still yet to see a significant drop in prices. The value of the average UK home now sits at almost £291,000 in August 2023 with that average much higher in the south of England.”
John Glencross, CEO and Co-Founder of Calculus, said that one area that advisers and investors could “consider helping mitigate against IHT is the Enterprise Investment Scheme (EIS), as it offers complete inheritance tax relief, provided the shares are held for a minimum of two years and are held at the point of death”.
“The latest figures show receipts from PAYE income tax and national insurance payments for April to September 2023 were £201.2 billion which is £10.8 billion higher than the same period a year earlier. Given the threshold for the additional rate of income tax has reduced from £150,000 to £125,140, we can expect further rises in coming months.
Financial planners can help people manage their tax affairs to optimise their money in this nuanced fiscal landscape and this is particularly true for taxes like IHT. The rules and restrictions surrounding aspects such as the residence nil rate band can be difficult to navigate, and with an increasing number of people facing unexpected IHT bills, speaking to a financial planner is key to ensuring you plan effectively and mitigate unnecessary costs.”