Inheritance tax receipts headed for record high

The latest figures from HM Revenue & Customs showed that inheritance tax (IHT) receipts have reached £5.7bn, £400m higher than during the same period last year.

At the current rate, the previous year’s record high £7bn in inheritance tax receipts is on track to be beaten come tax year end, continuing a concerning upwards trajectory. According to the Office of Budget Responsibility, total IHT intake could reach or exceed £8.4bn in the 2027/28 tax year. 

Additionally, in a bid to boost IHT receipts further, HMRC has launched an investigation into more than 2,000 households between April and November 2023 that they believe may not be paying enough IHT. Often, a sizable portion of IHT recovered comes from HMRC investigations that were opened months or even years previously. 

With rumours around the Government reducing or even scrapping IHT, despite the record highs, and with Labour saying that they would reverse any abolition should they win the next general election, the hot topic of IHT is leaving many with more questions than answers.

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What is IHT?

Inheritance Tax (IHT) is a tax levied by the Government on the estate of a deceased person in the UK. This includes all of their assets including property, personal belongings, and investments. 

However, this levy only applies to the total value of the estate that exceeds the IHT threshold or ‘nil-rate band’. As of the 2023/24 tax year, the threshold is set at £325,000. Anything above £325,000 could be subject to up to 40% inheritance tax and anything below this threshold is tax-free.

Following the introduction of the residence nil-rate band (RNRB) in April 2017, you can also add an extra £175,000 to the total tax-free threshold, provided you are passing down your assets and property to direct descendants.

Why are IHT receipts continuously on the rise?

The number of estates across the UK that are being pulled into the IHT net are increasing each year. 

Total IHT receipts collected by the Government have been steadily on the rise with the situation accelerating since the IHT tax free threshold was frozen at current levels. This was initially announced by the then Chancellor, Rishi Sunak, in his 2021 Budget. The Budget outlined that the IHT threshold, along with many thresholds and allowances, would be frozen for five years until 2026. However, this was further extended for two more years until April 2028. 

However, due to the rising rate of inflation coupled with ever increasing property values across the UK, the freeze essentially means that a greater number of people will cross the inheritance tax threshold each year. Many have been calling this move an example of ‘shadow tax’, as the simple act of freezing allowances rather than upping tax rates means the Government will have collected billions in extra tax.

The inheritance tax allowance of £325,000 was increased from £312,000 on 6 April 2009.  This means the IHT nil rate band has been frozen for over 14 years now and will keep allowances frozen until at least 5 April 2028. That’s a staggering 19 years of higher taxes on death.

With the Government cracking down on thousands of households that owe money who might not even realise they have breached the allowance, it’s more important than ever to seek professional advice to help navigate the threshold and avoid any possible penalties. Inheritance tax is often referred to as a voluntary tax as there are many ways you can mitigate it, with the right amount of time and planning. If you’re interested in learning more about how to manage IHT on your estate, to ensure the best possible wealth protection for you or your family, we can help. Give us a call on 0333 323 9065 or book a free non-committal initial consultation with a member of our team to find out more.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate tax advice.