Inheritance Tax receipts up £0.6 billion. How could this affect the tax bill on your estate?
New data recently released from HMRC shows that Inheritance Tax (IHT) receipts have produced £3.6bn from the period of April 2021 to October 2021. Some £600m higher than the amount recorded for the same period last year, marking a bumper 20% increase in just 12 months.
Why the big increase in inheritance tax receipts?
One explanation comes from an internal error with HMRC. At the beginning of the 2020-21 tax year there were significantly lower receipt values due to a temporally issue with HMRC in relation to logistical difficulties surrounding the pandemic.
Another explanation from HMRC came directly from them in their monthly bulletin on tax receipts and National Insurance contributions for the UK, saying that the higher receipts between October and November 2020 and March to August 2021 were to be expected “due to higher volumes of wealth transfers that took place during the COVID-19 pandemic”.
It should be noted that the HMRC prefaced this by saying it could not be verified until a later date as the full administrative data on the IHT receipts is not yet available.
The National Audit Office commented on the report, saying that HMRC “acted quickly” in response to the unusual circumstances of the pandemic “pausing debt collection to reduce pressure on debtors and working to improve its understanding of how the pandemic was affecting taxpayers.”
This is just another contributor to the general increase in collected tax that has been seen this past year. The same data from HMRC recorded £392bn collected in tax between April and October 2021, an increase of 34% (£99.8bn) from the same period in 2020, with stamp duty alone increasing by £4.1bn during that timeframe, to £10.2bn year on year.
National Insurance and Dividend Tax has also seen an increase. Find out more in our previous article on the National Insurance and Dividend Tax hikes.
How could this affect the tax bill on my estate?
With continuing rising house prices, even those of average wealth may be pushed over the tax-free threshold of £325,000.
IHT is paid on a person's wealth after death, however it can also be applied to some gifts made during a person's lifetime.
We all have an Inheritance Tax nil rate band available to us at £325,000, whereby you can pass down the value of your wealth, including your home, tax free, provided it doesn’t breach the band level. Anything over this amount could be subject to a tax at 40% on death. This is why even those with relative wealth but not considering themselves wealthy could find their loved ones hit with a large tax bill on death.
The good news is from April 2017, an additional main residence band was introduced which currently sits at an additional £175,000 for an individual but only when passing your main residence down to direct decedents. In this case an individual has a total potential nil rate band of £500,000 or up to a £1 million for a married couple.
For those with estates worth in excess of £2 million, the residence nil rate band reduces by £1 for every £2 over the £2 million threshold. So, for estates valued over £2.35 million there will be no benefit from the additional residence band.
When it comes to managing Inheritance Tax, it’s important to plan well in advance to assure the best possible outcome for you and your family. For more information, read our inheritance tax guide.
Whether planning for your future or your loved one's financial future, seeking advice is one of the most effective ways you can ensure both the safety and security of your finances. If you’re interested in how you can mitigate the inheritance tax bill on your estate, why not give us a call on 0333 323 9065 or book a free initial consultation with a member of our team.
Please note: the Financial Conduct Authority does not regulate tax advice.