Inheritance tax revenues rise to £5.2 billion in eight months

Inheritance taxes rose to £5.2 billion in the eight months from April to November, data from HM Revenue & Customs shows.

This marks an increase of £400 million on the same period a year ago, and continues the upward trend of the past decade.

Last month the Chancellor shunned a cut in inheritance tax in the Autumn Statement, as it emerged that the levy is on course to raise almost £10 billion a year by the end of the decade.

The Institute for Fiscal Studies thinks inheritance tax revenues could be closer to £15 billion a year within a decade.

Last month the Office for Budget Responsibility said it expects inheritance tax to reach £7.6 billion this year, an increase of 7.5 percent on last year.

Taking into account all taxes, HMRC revenues for the period between 2022 and 2023 increased by £24 billion, while total revenues were £515.9 billion.

About 4 percent, or 1 in 25, pays inheritance tax. According to the IFS, the rapid growth in prosperity among the elderly means that this number will rise to more than 7 percent in 2032-2033.

However, the freezing of inheritance tax thresholds, decades of house price increases and high inflation are pushing more and more estates above the threshold.

Inheritance tax is usually paid at a rate of 40 per cent above certain thresholds, but you can pass the inheritance tax money freely to your spouse or civil partner, who will then also inherit your benefit for when they die.

The primary threshold is the nil rate and applies to the majority of people in Britain, allowing up to £325,000 of an estate to be passed on without having to pay inheritance tax.

The main zero rate band has been unchanged since 2009. However, there is also a residential zero-rate band worth £175,000, which allows most people to pass on a family home to direct descendants more tax-efficiently, although this tapers for estates over £2 million. and is not available at all for estates over £2.35 million.

In June, official data showed that the amount of inheritance tax collected in April and May this year rose 9.1 percent year-on-year to £1.2 billion.

Nicholas Hyett, investment manager at Wealth Club, said: 'The Treasury has collected an additional £5.2m in inheritance tax from April to November 2023 and this figure is steadily increasing, month on month and year on year.

'Last year it raised more than £7 billion for HMRC, but it could reach £9.5 billion before the end of the decade.

'While only 4 per cent of estates currently pay inheritance tax, freezing the nil and residence nil rates for years means that people who would not have been considered wealthy in the past will eventually be caught out by this most hated of taxes. of taxes.'

Shaun Moore, tax and financial planning expert at Quilter, said: 'It was widely rumored that the government wanted to make changes to the IHT rules, but for now at least more families will be adding to the public purse as they get caught in the IHT net.

'IHT is a highly emotional burden that can divide voters, so we can expect it to remain a battleground policy for both the Conservatives and Labor as the general election approaches.

'Although Jeremy Hunt chose not to make any changes during his latest statement, we expect a Budget in March where it could resurface if the Tories see it as a vote winner. In any case, some form of tax simplification is high time.'

Julia Peake, Canada Life tax and estate planning specialist, said: 'People think they won't get caught, but with benchmark and domestic zero interest rates frozen until at least 2028, and exacerbated by house price inflation, more and more people are finding that once their home is no longer encumbered by a mortgage, most, if not all, within their zero rate range.”

She added: 'This has the effect of affecting other assets in an estate.'

As the coffers grow from inheritances, many households are experiencing serious delays from the government's Probate Service.