Inheritance tax take beats all records as property price hikes boost HMRC’s coffers by whopping £6.4bn
The amount of inheritance tax (IHT) paid in February totalled £531m, bringing the total for the 2022/23 tax year to a record £6.4bn.
With just one month to go the amount already surpassed the £6.1bn received by the Treasury throughout the entire 2021-22 financial year.
The record-breaking inheritance tax take follows last week’s revision by the OBR of future IHT takes, with estimates that between 2022-23 and 2027-28, the Treasury will receive nearly £3bn more than was previously forecast at the November statement.
The projected total IHT tax take by 2027-2028 sits at £45bn, compared to the previous estimates of £42.1bn.
By 2027-28, it is estimated that 6.7 per cent of deaths – around 47,000 deaths – will trigger an inheritance tax charge, up from an estimated 4.1 per cent in 2020-21.
The IHT figures follow the announcement that the UK borrowed a higher than expected £16.7bn in February, a record for that specific month due to the government spending billions on helping families with the cost of energy bills, official figures out today reveal.
IHT versus government borrowing
Office for National Statistics (ONS) numbers out today indicate Chancellor Jeremy Hunt’s decision to cap typical household energy bills at £2,500 pushed government borrowing nearly £10bn compared with the same month last year.
Stephen Lowe, group communications director at retirement specialist Just Group, said: “The Chancellor is benefitting from the pincer movement of recent rises in property prices and frozen thresholds. Inheritance Tax is an increasingly valuable source of income for the government which has raked in a record sum even with one month of this tax year’s receipts yet to be collected.
“The Treasury appears to be banking on ever greater receipts from Inheritance Tax. Buried in the small print of the Spring Budget was confirmation that the government expects to scoop up nearly an extra £3bn from Inheritance Tax over the next six years. In total, the tax is set to add £45 billion to government coffers and by the end of that period around one in every 15 deaths is expected to trigger an IHT charge.
“With an ever-growing proportion of estates likely to become liable to paying inheritance tax, it is increasingly important that people are regularly assessing the value of their estates. This should include getting an up-to-date valuation of any owned property given the substantial house price increases generated through the pandemic.
Need for inheritance tax planning
John Glencross, CEO and co-founder of Calculus, said: “One area that advisers and investors could consider helping mitigate against IHT is by investing in an Enterprise Investment Scheme (EIS), as full inheritance tax relief is provided, for the life of the investment once the shares have been held for two years.
Laura Hayward, tax partner at Evelyn Partners, said the latest hike in IHT receipts provided a fresh reminder that families should give careful thought as to how best to manage their tax planning to ensure they don’t pay more tax than they need to.
“There were no significant changes to the IHT charging regime in last week’s Budget, but the overall silence in this area shouldn’t be taken that the IHT pain on families is being eased.”
“The fact that the nil rate band – unchanged since it was increased to £325,000 from April 2009 – remains frozen until at least April 2028 represents a gift that keeps on giving for the Chancellor. The almost twenty-year freeze in the nil rate band, coupled with inflationary growth of asset values, will see many families with moderate levels of wealth being drawn into the IHT net.
“Families that find they are being dragged above the IHT threshold may wish to consider taking relatively easy steps to manage their exposure to IHT.
Hayward added: “Gifts you make to other individuals are generally not subject to IHT unless you die within seven years. There is also an annual gift allowance of up to £3,000 per tax year, and this will not be subject to IHT even if you do die within seven years. This £3,000 annual allowance can only be brought forward for one tax year, so if you have assets to spare you may want to consider using up this and last year’s allowance before 5 April. Families should also ensure they invest in the most tax-efficient manner possible.
“The scrapping of the lifetime allowance for pensions in last week’s Budget will greatly increase the IHT breaks available for people with wealth to pass down to the next generation, as pensions are generally exempt from IHT. Therefore pensions could now be considered a vehicle for tax efficient death planning, without any intention of ever drawing the money out. But people should be aware that pension rules could easily be changed again in the future, only to find this tax advantage withdrawn at the point that it really matters.”