Inheritance tax revenue soars to £6.3bn – but could give ‘headroom’ for Hunt’s budget | Personal Finance | Finance

Inheritance tax receipts hit a whopping £6.3billion in the nine months from April 2023 to January 2024, new HMRC data shows.

This marks a £400million increase from the same period in the previous year, continuing the upward trend fuelled by years of soaring house prices and frozen personal allowances.

While just four percent of estates are reportedly picking up the tab, research from the Wealth Club shows the proportion of families affected is higher.

Wealth Club’s calculations suggest that for those affected by the tax, the average bill could increase to £238,000 this 2023/24 tax year, with over 30,000 families having to hand over part of their inheritance to the taxman.

This is a steep 11.2 percent increase from the £214,000 average paid just three years ago and a 14.2 percent rise in the number of estates paying the tax.

Breaking the figures down further, research by Canada Life unveiled that inheritance tax has contributed £146million per week to the treasury.

Stacey Love, tax and estate planning specialist at Canada Life, commented: “If receipts continue on the current trajectory, we’ll be on track to beat last year’s record. Indeed, the OBR has forecast that HMRC will collect £7.2billion in 2023/24.

“Of course, all eyes and ears will be on the Spring Budget in a few weeks’ time, to see what, if any, changes are proposed to Inheritance Tax.”

Some suggest the staggering rise in receipts could present the Chancellor’s budget with more “headroom”.

Edward Grant, director of tax and technical services at St. James’s Place, said: “Income tax self-assessment receipts are £0.9 billion lower than the same period last year. However, monthly Income tax, NICs and CGT receipts continue to show year on year tax rises, giving the chancellor potential headroom for future tax cuts in the Spring Budget.

“In the long term, we continue to see the impact on receipts from the freezing of IHT thresholds at 2020/21 levels. This continues to keep the pressure on for the chancellor looking for votes to cut IHT.”

However, due to the small number of people the tax reportedly affects, others have dropped the issue lower on Jeremy Hunt’s agenda.

Laura Hayward, tax partner at wealth management firm Evelyn Partners commented: “Despite being paid by a small proportion of estates, IHT is unpopular and has attracted attention as one of the taxes the Chancellor could look to cut at the spring Budget, in a last roll of the fiscal dice before the election battle proper commences.

“Speculation before the Autumn Statement focused on a cut to the 40 percent rate. 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’ saved assets will surge above the NRB – which would now stand at £489,700 had it risen with inflation since April 2009.

“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, Ms Hayward noted various steps can be taken to reduce a future IHT liability.

She said: “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.”

The Spring Budget will be announced on March 6.