Inheritance Tax receipts for April 2024 to July 2024 are £2.8 billion, which is £0.2 billion higher than the same period last year, HM Revenue and Customs revealed today.
Following the release of this data, industry experts have shared their thoughts with IFA Magazine.
Laura Hayward, Tax Partner at professional services and wealth management firm Evelyn Partners, says: “Annual rises in inheritance tax paid are pretty much a given these days, as property and financial market assets continuing to rise in value, and IHT allowances remain frozen. Inevitably, as more estates find they exceed the nil-rate bands, and more assets in each liable estate become taxable, the IHT take creeps upwards. With no complaints on that from the Treasury, there is little incentive for the Chancellor to halt this trend. Rather, there will be a temptation to capitalise on it to fill gaps in the public finances.
“Senior Labour figures have made it clear they think certain reliefs – specifically business and agriculture property relief – are too generous and think-tanks seem keen that defined benefit pension pots are brought into the remit of IHT. We already know that the new Government will crack down on ‘abuse’ of reliefs and that can easily lead to a review of the reliefs themselves.
“So Rachel Reeves’ first big fiscal statement on 30 October will be closely watched for any review into IHT reliefs, or suggestion that pension pots could be deemed part of a deceased’s estate.
“IHT is also likely to be a growth area for Treasury revenues in the coming years for another reason. With the baby boomer generation now hitting their sixties and seventies, some of that generation’s accumulated wealth is being passed on to children and grandchildren, and getting taxed on the way. The ‘great wealth transfer’ is also underway because many of the older, asset-rich generations are making lifetime gifts to their families. As the wave of inheritance is set to grow over the next 30 years to a transfer of £5.5trillion, the temptation for successive Governments will be to tap into it to plug gaps in the public finances.
“The Office for Budget Responsibility forecasts that the share of deaths resulting in the payment of inheritance tax will rise to 6.3 per cent by 2028–29, the highest level since the 1970s. That proportion was as low as 2.7 per cent in 2009/10. Revenue from inheritance tax and its predecessors has increased over time in real terms, from around £2billion in 1980/81, to £7.5billion in 2023/24, and will reach almost £9billion by 2028/29 (all amounts in 23/24 prices).”
Alastair Black, Head of Savings Policy at abrdn, said: “Without any IHT reform, these numbers will only continue to rise. In fact, the OBR has projected receipts could reach £9.7 billion by the end of the decade.
“Following Rachel Reeves’ announcement of a £22 billion ‘hole’ in UK finances, speculation is rife about potential tax hikes, with IHT mooted as one possibility. With this in mind, we eagerly anticipate what will be unveiled in the upcoming Budget.
“There’s a chance we could see pensions drawn into the IHT net or existing allowances tightened. However, these changes could have far-reaching consequences. They might deter investment needed to boost economic growth or complicate matters for consumers who have made significant financial decisions based on the current rules, potentially requiring intricate transitional arrangements. Any proposed changes are far from straightforward.
“If changes are made however, we’d like to see IHT simplified and recalibrated. Rethinking the tax could help return it to fairer foundations, and also prevent IHT becoming a penalty for entrepreneurship.”
Rachael Griffin, tax and financial planning expert at Quilter: “The latest HMRC figures reveal that inheritance tax (IHT) receipts have surged to £2.8 billion for April 2024 to July 2024, which is £0.2 billion higher than the same period last year. This increase, ahead of first Labour’s first autumn budget, will rekindle debates about whether this tax will be increased as the government attempts to shore up public finances.
“At the same time, PAYE income tax and national insurance receipts for April 2024 to July 2024 have climbed to £143.4 billion—an increase of £2.3 billion compared to the same period last year. While Labour has pledged not to raise taxes on working people, the ongoing freeze on income tax thresholds, combined with wage growth, is pushing more individuals into higher tax brackets, further driving up these receipts. While it’s unlikely that there will be any changes to the thresholds at the budget this is not a situation that can run and run and its pledge to not tax working people becomes less meaningful as more people who don’t consider themselves wealthy pay higher rate tax.
“Speculation is rife that the Chancellor might introduce changes to IHT, particularly targeting Agricultural Property Relief (APR) and Business Property Relief (BPR). These reliefs, which currently allow farms and family businesses to be passed down without incurring prohibitive tax liabilities, might be scaled back. Labour might opt to remove APR for those who do not actually own farmland and BPR where it doesn’t meet the intention of the relief i.e. protecting small businesses being kept ‘in the family’. However, the unintended consequences could be huge especially for the AIM market which relies heavily on the shares being eligible for BPR after holding the shares for two years. This might therefore hamper Labour’s stated aim of getting more investment into UK plc.
“As Labour navigates these complex issues in the upcoming budget, there is a strong argument for simplifying the IHT system and making it more appealing to gift during your lifetime. The current system’s complexity often leads to confusion and inequities, with wealthier estates better equipped to navigate and minimise tax liabilities. A simpler system could not only reduce administrative burdens for taxpayers and HMRC but also make the tax fairer. Increasing the gifting allowances also would encourage more wealth to cascade down the generations.
“Simplifying IHT could involve increasing the nil rate band, which has remained static for over a decade, or potentially lowering the headline IHT rate in exchange for eliminating or reducing complex reliefs. Such reforms could make the system fairer, particularly for middle-income families who increasingly find themselves liable for a tax originally intended for the very wealthy.
“As the debate on IHT reform continues, the upcoming budget will be crucial in determining whether Labour chooses to maintain the current complex reliefs or pivot towards a simpler, more equitable system that better reflects modern economic realities.”
Paul Barham, Partner at Forvis Mazars commented: “IHT receipts continued to climb in July, raising £0.2 billion more than the same three-month period last year. With tax-free thresholds still frozen, IHT is nipping at the heels of families with modest estates.“The new government’s Autumn Budget may herald a change to inheritance tax rules but the devil will be in the detail, and without a crystal ball we don’t yet know what that will hold. Families wary of the financial repercussions of any radical change should, as always, make use of the allowances available under the current system. The tax, seen as unpopular by many, could yet cause more pain for families across the UK in the longer-term.”
Lisa Caplan, director of OneStep Financial Planning at Charles Stanley: “This morning’s data shows the inexorable march of IHT continues at pace. The government has a large deficit to fill and whilst it has said there will be no increases in direct taxes, there is plenty of scope for peripheral taxes like IHT. Whilst it brings in less than 1% of total government revenues, there are plenty of exemptions and exceptions that could be revisited. Business relief, pensions relief, and agricultural land relief have been touted as possibly open to review. Closing these is estimated to increase IHT receivables by a fifth. It will be interesting to see what Rachel Reeves unveils in her first Budget come 20th October.”
Stephen Lowe, group communications director at retirement specialist Just Group, commented: “Another month and another boost for The Treasury from Inheritance Tax. But with the Autumn Statement in two months’ time, it seems inevitable that the Chancellor will at the very least run her slide rule over Inheritance Tax to see if it’s a way to raise more revenue.
“The combination of frozen thresholds and property price rises are already driving a record Inheritance Tax take, with receipts doubling compared to 2009 when the tax-free threshold was frozen. We will have to wait and see if Rachel Reeves decides that Inheritance Tax can work even harder for the Treasury.
“For people who think they may be affected by IHT we recommend they regularly review the entire value of their estate, including obtaining an up-to-date valuation of their property. Speaking with a professional, regulated adviser will then help in understanding how to legitimately manage exposure to the tax.”
