Inheritance Tax receipts for April 2024 to August 2024 are £3.5 billion, which is £0.3 billion higher than the same period last year, HM Revenue and Customs reported today.
Following the release of the data, industry experts have shared their thoughts with IFA Magazine.
Alastair Black, Head of Savings Policy at abrdn, said: “With no reform in sight, families are bracing to fork out over £8 billion in inheritance tax this year alone.
“With Labour’s Autumn Statement on the horizon, a tax raid could be imminent. Rumours are swirling that pensions might be pulled into the IHT net, or that Rachel Reeves could slash gifting allowances and reduce IHT relief on businesses and agricultural land.
“Any changes like this could have serious ripple effects, scaring off much-needed investment or throwing a wrench into the plans of people who’ve based their finances on today’s rules. So we will need to see potentially complex transitional reliefs too.
“Whatever the Chancellor announces, one thing is certain: we need to see a simpler, fairer IHT system that cuts through the confusion and brings some much-needed clarity to a tax that’s spiralling out of control.”
Shaun Moore, tax and financial planning expert at Quilter: “The latest figures from HMRC reveal that inheritance tax (IHT) receipts climbed to £3.5 billion in April to August 2024, an increase of £0.3 billion compared to the same period last year. This continued uptick in IHT receipts, which puts it on course for another record breaking year, will no doubt stoke the rumours and debates about whether the tax will be increased ahead of Labour’s first budget.
“As Labour navigates the complex issues surrounding IHT in the upcoming budget, there is a strong argument for simplifying the IHT system and making it more appealing to gift during one’s lifetime. The complexity of the current system often leads to confusion and inequities. A simpler system could help reduce the administrative burden for both taxpayers and HMRC, while also making it fairer. Similarly, increasing the gifting threshold would encourage earlier wealth transfer, reducing future IHT liabilities, and could boost consumer spending.
“Elsewhere, PAYE income tax and national insurance receipts for April to August 2024 also climbed to £179.7 billion. This is £5.1 billion higher than the same period last year.
“Labour has repeatedly pledged not to increase taxes on working people, but the combination of frozen income tax thresholds and wage growth continues to push more and more people into higher tax brackets, boosting government coffers in the process. With thresholds frozen until 2028, Labour’s pledge will be significantly watered down as more people are dragged into paying more tax regardless.”
Laura Hayward, Tax Partner at professional services and wealth management firm Evelyn Partners, says: “Rising IHT receipts are a fact of life for the Treasury but even at the current rate of 9.4% on the year they aren’t rising fast enough to help fill the “black hole” that the Government says it has identified in the public finances. It’s by no means certain that the Chancellor will target the transfer of wealth to raise more tax revenue, but if she does then including defined contribution pension pots in the value of estates for IHT purposes seems to the front-runner in the line-up of possible changes.
“The latest IHT salvo in the great Budget debate has been fired by the Resolution Foundation, which this week urged the Chancellor to abolish the £175,000 residence nil-rate band on October 30, in order to save the Treasury an estimated £2billion. The think-tank said there was “a good case” for scrapping the RNRB, which means that homeowners who are leaving their main residence to a direct descendant can shield an extra £175,000 of their wealth, on top of the main £325,000 NRB available to everyone, from IHT.
“This comes on top of speculation that the Chancellor could tighten up the seven-year rule on gifting by changing the “potentially exempt transfer” rules to cut down on IHT relief, which has got some families wondering whether they should “set the seven-year clock ticking” on a lifetime transfer now or in the next few weeks.
“Large gifts that go beyond the annual gifting limits can be made at any time, but if the giver dies within seven years then the gifts themselves could be taxable (if they exceed the nil-rate band) or could be included in the estate for the calculation of IHT.
“Figures from HMRC that we obtained recently by an FOI request revealed that a rapidly increasing number of families are being caught out by IHT bills after death on gifts made during lifetime.
“The number of estates that paid IHT on gifts made less than seven years before death more than doubled from 590 in 2011/12 to 1,300 in 2020/21, according to the data. Meanwhile, the total sum of IHT paid on gifts also more than doubled from £101 million in 2011/12 to £256 million in 2020/21 – an increase of 153% in monetary terms and 119% in real terms. The data suggests the average tax charge payable by beneficiaries on lifetime gifts was £171,186 in 2011/12 and £196,923 in 2020/21.
“That suggests some very significant tax bills are being delivered to unprepared beneficiaries after their generous relative has died, and this might be another reason for those contemplating making big lifetime gifts to start the seven-year clock ticking sooner rather than later. Even if the gifter were to pass away within seven years, there is a chance the IHT bill could be reduced by taper relief.”
