Inheritance tax receipts ‘on course to break new records’

The government’s inheritance tax (IHT) take is “on course to break new records” as HM Revenue & Customs’ (HMRC) receipts continue to soar, it has been suggested.

New figures published by the government this week revealed total receipts for the financial year up to July 2023 are £2.6 billion. This is some £200 million higher than the same period in the previous financial year, which broke new records itself.

Monthly receipts. Source: HMRC

What’s more, the previous month of June 2023 was the highest monthly total ever recorded. This says, HMRC, “could be due to possible effects from the recent rise in interest rates that HMRC is obliged to charge on overdue tax bills following the recent increases in the Bank of England base rate”.

Indeed, these interest rate rises have been described as a “stealth tax rise” by some within the private client profession, having risen 14 times since the start of last year. The most recent rise on Tuesday took rates to 7.75%, 2.5% above the base rate.

Rachael Griffin, tax and financial planning expert, pointed out that the key driver behind the rise in receipts is the freeze on thresholds which is set to remain in place until at least April 2028. This, she says, means the current year is “well on course to break new records and could get close to £8 billion”:

“In many cases higher property prices is helping lift the number of households falling in the scope of IHT. While growth has slowed in the housing market, it hasn’t yet seen the drop in prices some were expecting. The average UK home has more than tripled in value over the past two decades from £84,620 in 2000 to £288,000 today, fast approaching the frozen inheritance tax nil rate band of £325,000.

Without proper planning, many people could now find themselves in a position where they end up paying inheritance tax unnecessarily, as they may never have previously considered the need for inheritance tax planning and therefore have not taken the steps required to mitigate it…

… The freezing of inheritance tax forms part of a broader strategy of fiscal drag by this government, which has frozen income tax thresholds, capital gains tax allowances, dividend allowances, and the amount you can take tax-free from your pension to boost revenues.”

Stephen Lowe, group communications director at retirement specialist Just Group, said:

“Inheritance tax continues to rake in cash for the government as property prices tip more estates into the system’s frozen thresholds. This is evident in the spike in the number of estates paying inheritance tax in 2020/21.

The result is that the government looks set to gain bumper returns from inheritance tax for the foreseeable future, as reflected in OBR estimates suggesting it will be generating over £8 billion a year by 2027/28.

These big numbers are good news for the Exchequer but a warning for the public, reminding them to assess the entire value of their estate including an up-to-date valuation of their property.”

Read more stories

Join over 6,000 wills and probate practitioners – Check back daily for all the latest news, views, insights and best practice and sign up to our e-newsletter to receive our weekly round up every Friday morning. 

You’ll receive the latest updates, analysis, and best practice straight to your inbox.