Inheritance tax (IHT) receipts continued their record-breaking upwards trend into the new financial year, data released this week by HM Revenue & Customs (HMRC) has confirmed.
According to figures for April 2023, receipts during the month totalled £597 million– some £90 million higher than the same period only a year earlier.
This follows a 2022/23 financial year that saw the Treasury collect £7.1 billion in IHT, an increase of over a third from the £5.3 billion collected in 2020/21 just two years earlier.
What’s more, the latest forecasts from the Office for Budget Responsibility (OBR) suggest receipts will hit £7.2 billion before April 2024 and as much as £8.4 billion by 2027/28.
“Historically IHT was viewed as a tax only for the very wealthy, but frozen tax thresholds and elevated house prices have seen far more people caught by the IHT net,” explained Rosie Hooper, chartered financial planner at Quilter:
“The Chancellor’s extended freeze has already proven effective, raking in a significant amount by stealth with a £1.0 billion increase in the inheritance tax take in the 2022/23 tax year. If the current pattern continues, we can expect to see a similar increase this tax year.”
Hooper described IHT as a “hated” tax, suggesting this may play on the incumbent government’s mind ahead of the General Election pencilled in for next year:
“The ever-increasing tax revenue from IHT presents a conundrum for the government now we are possibly only a year from a General Election.
Rumours are already rife regarding potential policy changes the government might enact to improve their chances of winning the next election, and some reports suggest inheritance tax may be ripe for reform.
Considering it is a growing revenue generator, this government might find the prospect of lowering the tax a bitter pill to swallow, but there it would be likely to drum up support.”
Dean Moore, Managing Director and Head, Wealth Planning, RBC Wealth Management, said:
“The current state of IHT places a substantial financial strain on the loved ones left behind after a person’s passing. In response, individuals are increasingly resorting to measures such as gifting, investing, donating, and insuring their money to minimise or avoid this tax.
Failing to promptly and effectively address the issue of IHT can lead to families facing overwhelming administrative and financial burdens during a time of already profound emotional stress. By adopting a proactive and incremental approach to IHT, the process can be made significantly easier, alleviating the strain on those who are grieving the loss of a loved one.”