HMRC raked in a staggering £1.4billion in inheritance tax receipts in just two months, new data shows.
The latest figures from HM Revenue and Customs (HMRC) released this morning, reflect a £200million increase during the same period – January and February – the year before.
In the 2023/24 tax year, inheritance tax raised £7.499billion in revenue for HMRC. However, analysts say this could increase dramatically should the Labour Party win the election.
Its pledge to restrict non-doms from shifting money offshore is expected to raise £430million a year, which is equivalent to a six percent increase in the overall inheritance tax take.
Combining this with thresholds that have been frozen since 2009 despite rampant inflation means the UK’s most hated tax is only likely to grow.
However, Nicholas Hyett, investment manager at Wealth Club pointed out: “The reality is that inheritance tax would likely rise under either of the two main parties.
“Freezes on thresholds over the last few years, partnered with decades of house price rises have brought more and more estates into the tax band.
“Attempts to increase taxes on wealthy non-doms may be politically popular, but most of the tab will still be picked up by families who would not consider themselves particularly rich.
“For these families, their standard of living hasn’t changed, indeed inflation means it might have gone backwards, but frozen allowances mean the Government now considers them wealthy enough to face inheritance tax.”
Mr Hyett pointed out that there are some “useful ways” to mitigate inheritance tax – whether that’s making cash gifts, passing pensions on tax-free, investing in certain qualifying AIM shares or making EIS/SEIS qualifying investments.
However, Mr Hyett said: “Political uncertainty is right now – and with inheritance tax a bit of a political football it’s difficult for investors to make informed decisions.
“As ever, uncertainty is the enemy of investment ultimately undermining economic growth.”
Commenting on the data, Laura Hayward, a tax partner at professional services and wealth management firm Evelyn Partners, said: “The 16.6 percent surge suggests that the next Government will be taking significantly more from IHT whatever it intends to do with the tax or the reliefs around it.
“IHT has turned into a spectre at the electoral feast which no one really wants to mention by name, never mind grapple with. Labour named it once in its manifesto, confirming its pledge to end the use of offshore trusts, which is a matter affecting mainly non-doms.
“While the Conservatives promised to retain business-related reliefs, they made no other pledge on IHT, with not one mention of the word ‘inheritance’ in their manifesto. Quite a climbdown from the situation less than a year ago when the possible abolition of IHT was being touted for the 2023 Autumn Statement.”
Ms Hayward noted that even if a new Government is shy of making transparent and potentially unpopular decisions to tax the passing on of wealth more harshly, fiscal drag is “doing a similar job” behind the scenes anyway.
Ms Hayward said: “With both property and financial market assets continuing to surge in value, there is no prospect of the trend abating for more estates, and more assets in each liable estate, being dragged over the frozen thresholds at which IHT kicks in.”
The Office for Budget Responsibility forecasts the share of deaths resulting in the payment of inheritance tax will rise to 6.3 percent by 2028/29 – the highest level since the 1970s.
Ms Hayward said: “That proportion was as low as 2.7 percent in 2009/10.”
However, she noted: “The haul for the Treasury from IHT is likely to escalate in the coming years due to a particular demographic bump. As the wealthy baby boomer generation dies off in the next couple of decades, there will be a massive transfer of wealth. Research shows that the older generations have as much as £2.6trillion of equity tied up in their homes.”
