HM Revenue and Customs has revealed that inheritance tax receipts for April to December 2023 were £5.7 billion, which is £0.4 billion higher than in the same period the previous year.
The increase of 7.5% means the Treasury is on course to take record receipts of about £7.6billion from IHT in the 2023/24 tax year, after surging to an all-time high of £7.1bn in 2022/23 – a £1billion increase on 2021/22.
Laura Hayward, Tax Partner at professional services and wealth management firm Evelyn Partners, comments: “IHT is harvesting more in revenue than was ever forecast as rising house prices and growth in investment assets have boosted the value of estates over the last couple of decades. This has drawn more estates, and more assets in each liable estate, over the threshold at which IHT kicks in, which has been frozen at £325,000 since April 2009. Modest property downturns as we have seen in the last year or so will do little to dent this trend.
“In recent years there has also been a Covid effect on mortality which has further increased the overall IHT take.
“Despite being paid by a small proportion of estates, IHT is widely unpopular and continues to attract attention as one of the taxes the Chancellor could look to cut at his spring Budget, in an effort to boost the Conservatives’ electoral outlook.
“Speculation has focused on a cut to the 40% rate, as it did before the Autumn Statement, but a raising of the nil-rate band would do more to protect families with more modest estates who are being drawn into paying IHT. Property and investments tend to rise in value over the long-term so if nothing is changed, more of households’ carefully saved assets will surge above the NRB – which would now stand at £489,700 had it risen with inflation since April 2009.
“Ironically of course, it’s the fiscal drag effect across the board of taxation that could end up giving Jeremy Hunt the headroom to cut taxes this spring, as frozen allowances and bands look set to take more tax revenue from rising income and wealth in the coming years, and that in turn improves the outlook for the public finances.
“As an IHT cut would have little immediate impact on households’ financial situation, it’s perhaps more likely that a pledge on inheritance tax will feature in the Conservative manifesto rather than in the Budget – particularly as it might appeal to and motivate some of the party’s core voting demographic.
“In the meantime, there are various steps that can be taken to reduce a future IHT liability. It’s invariably a good idea to keep an up-to-date Will to ensure first that one’s assets are distributed as desired, and second that an unnecessary IHT liability is averted.
“With the end of the tax year fast approaching, some savers will want to use their annual gifting allowances before they expire, as gifting will help to reduce the size of an estate – perhaps even taking it below the NRB. Likewise, as defined contribution pension pots are very IHT-efficient, some savers might look to use up their annual pension allowance with extra contributions.”
