Inheritance tax revenues rise by £400m in six months as more people ‘get in the net’

New data shows that inheritance tax added an extra £400m to public coffers between April and September, compared to the same period last year.

Inheritance tax revenues reached £4.3 billion in the six months from April to September, new HMRC data shows, continuing the upward trend in IHT revenues that has continued since 2009.

In the last full tax year, inheritance tax increased by £7.5 billion, more than £400 million compared to the previous year, which saw inheritance tax revenues increase by almost £1 billion.

Alastair Black, head of savings policy at Abrdn, said: ‘As asset values ​​continue to rise and thresholds remain frozen, more and more people are finding themselves in the inheritance tax net.

‘Families will be watching the upcoming Autumn Budget closely for any changes to inheritance tax, while rumors are swirling that the Chancellor will seek to increase inheritance tax to help meet the now reported £40 billion target.’

Currently, approximately one in twenty households is liable to pay taxes, but this could increase in the budget.

While it is often considered a tax on the wealthy, “this is simply no longer the case,” says David Denton, technical advisor at Quilter Cheviot.

Inheritance tax of 40 percent is levied on estates above a certain size.

You must be worth £325,000 if you are single, or £650,000 jointly if you are married or in a civil partnership, for your loved ones to pay inheritance tax.

A further allowance, the nil rate band, increases the threshold by £175,000 per person (so £350,000 for a married couple) for those who leave their home to have direct descendants. This creates a potential maximum tax-free total of £1 million for the joint inheritance.

This home ownership allowance will be abolished once an estate reaches £2 million, with a rate of £1 for every £2 above the threshold. It disappears completely by £2.3 million.

David Denton added: ‘Labour’s first budget is now just over a week away, and rumors of possible changes to inheritance tax are rife.

‘Inheritance tax is a highly emotive issue and has been ripe for reform and simplification for years, as it is full of impenetrable and irrelevant details that require revision.

‘However, reports that the government could make a quick tax grab by abolishing the complex but valuable zero-rate residency band, or extending the current seven-year rule to 10 years, could face significant backlash.’

Rumor has it that Chancellor Rachel Reeves could combine the two thresholds but reduce the total amount you can leave to your loved ones.

Another possibility is that pensions are lumped together with assets that count for inheritance tax.

Other potential changes could close several tax loopholes, potentially putting agricultural and business support on the chopping block; a move that could see farmers and small business owners suffer and AIM paralyzed, despite the government’s pledge to boost UK investment.

“No one knows what changes will be announced, but most agree there will be efforts to generate more income from estates,” said Nicholas Hyett, investment manager at Wealth Club.

“All governments must balance short-term and long-term priorities. Throwing the kitchen sink at the inheritance tax may be good politics in the short term, but in the long term you risk doing damage.’