The Office for Budget Responsibility’s latest Fiscal Risks and Sustainability Report, published today, highlights how the changes in the UK’s demographics will influence rising Inheritance Tax (IHT) and Capital Gains Tax (CGT) receipts with the proportion of the population aged over 80 likely to rise from 5% in 2025 to 12% in 2075.
On this basis, IHT and CGT receipts are projected to rise from 1.4% of GDP in 2030-31 to 2.2% of GDP by 2075-76 in the OBR’s baseline scenario which also includes an assumption that the large historical wealth gains of those currently of retirement age drive a ‘cohort effect’ in IHT receipts that grows to around 0.2 per cent of GDP by the 2040s.
The OBR also presents an alternative scenario in which rather than just a cohort effect, wealth growth outpaces growth in GDP over the whole projection period which would see receipts from IHT and CGT rise to 2.7% of GDP by 2075-76.
“The OBR’s latest report demonstrates how demographic changes in the UK are likely to accelerate wealth transfer over the coming years and drive increases in Inheritance Tax and Capital Gains Tax.
“Treasury receipts from these taxes have already increased significantly of late driven by recent reforms alongside the ongoing freeze to thresholds and rising property values.
“The OBR notes the specific fiscal impact also arising from wealthier cohorts – particularly the ‘baby boomer’ generation – beginning to reach the end of their lives. With significant value tied up in property, which has seen strong growth over recent decades, this transfer of wealth is likely to trigger a growing proportion of tax liabilities.
“The projections underline the immense value of financial advice and the growing role that the industry is likely to play in supporting legacy planning over the coming decades.”Simon Martin, Head of UK Technical Services at Utmost
