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IHT receipts show year-on-year rise of £0.7bn

New HMRC data out today shows that IHT receipts for April 2021 to March 2022 were £6.1 billion – £0.7 billion higher than the same period a year earlier.

Julia Rosenbloom, tax partner at Tilney Smith & Williamson, the leading wealth management and professional services which is re-branding to Evelyn Partners this summer, comments: “The latest reported year-on-year rise in IHT collections will be welcomed by the Treasury that needs every pound it can get at the moment to pay for the government’s ambitious spending commitments against a backdrop of ongoing global uncertainty.

“Given that the Office for Budget Responsibility recently forecasted that the Treasury will receive £37bn in IHT payments over the next five years, now is the time for families to take action and look carefully at their tax planning. Even before any possible changes to IHT in the next Budget later this year, many people can expect to see increased IHT bills following the Chancellor’s decision to freeze both the nil rate band and residence nil rate band until at least April 2026. With rising property prices, more families are being brought into scope for IHT and this is forcing some to face difficult decisions – such as potentially needing to sell family homes to settle IHT bills.

“By taking professional advice and planning ahead, families may have an opportunity to reduce or eliminate their IHT bill through considering investing tax-efficiently and making gifts to family members.”

Katharine Arthur, Partner and Head of Private Client at haysmacintyre, says: “These latest tax receipts show National Insurance contributions have risen to their highest levels on record, reaching a vast total of nearly £157bn over the last twelve months. Across the board, Brits are now paying more Income Tax and National Insurance than ever before, with employees now having returned from furlough and the economy beginning to recover as the Covid-19 pandemic eases. There are record IHT receipts for the Treasury too – largely reflecting rising asset values, particularly residential property. 

“Furthermore, with the national insurance hike coming into play this month, the numbers coming into HMRC’s coffers are likely to rise further. Considering the rise in national insurance was brought in with the distinct purpose of boosting the finances of the NHS post-Covid, it is of course hard to argue against. However, with more and more individuals now feeling the pinch of the cost-of-living crisis, the Chancellor is likely to be under increased pressure to alleviate the enlarged tax burden that ordinary Brits are facing in the months ahead.”

Rosie Hooper, chartered financial planner at Quilter, comments: “Today’s HMRC figures show inheritance tax receipts continue to provide a growing source of revenue for the Treasury, with £6.1 billion collected between April 2021 and March 2022.. This is £0.7 billion higher than in the same period a year earlier. 

“A key contributor to the increase in IHT receipts is the housing market which increased relentlessly over the same period, in which stamp duty holidays drove the UK to a record high average house price of an eyewatering £360,101, according to Rightmove.

“With thresholds frozen, the increase in IHT revenue is viewed as a stealth tax, as more and more people are dragged into the IHT net following the sale of their homes.

“This tax year, you can pass on £175,000 of your property tax-free, which is effectively doubled to £350,000 when combined with the allowance of your spouse or civil partner. That’s layered on top of your inheritance tax allowance – or nil rate band – of £325,000, meaning it is possible to pass on £1m inheritance free as a couple. However, the RNRB only works for those with direct descendants to inherit the family home, while the UK’s six million cohabitees are less fortunate and cannot claim the combined allowances.

“There are other ways to reduce your inheritance tax exposure, such as gifting to family members. Each tax year you can give away up to £3,000 worth of gifts with your annual exemption, so as a couple you could gift £6,000 a year. In addition, there is no limit on excess income – above expenditure – that can be gifted. Unfortunately, gifting allowances have failed to keep up with inflation, and the currently soaring inflation rates will do little to help matters in terms of IHT bills. If required, you could also consider more significant gifts which would be Potentially Exempt Transfers (PETs) or Chargeable Lifetime Transfers (CLTs), but these will take seven years to see the IHT benefit. As well as reducing the taxable estate value, gifting is particularly useful for estates impacted by the RNRB taper as the gifts can immediately reclaim the extra band.”

Gill Millen, Managing Director of Bowmore Financial Planning, adds: “Over the past 13 years, IHT has become a significant income stream for HMRC. What was intended to be a tax only on the truly wealthy has become a general tax on ‘Middle England’ and the next generation.”

“13 years ago £325,000 was a reasonable threshold for IHT. That threshold is no longer fit for purpose and the problem is only getting worse as house prices continue to rise.”

“The Government should look at increasing the threshold in line with inflation to make sure that normal, middle class families are able to pass on wealth without being taxed unnecessarily.”

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