Inheritance tax (IHT) receipts rose 14% to £6.1bn in the 2021/22 tax year, the largest single-year rise since 2015/16.
IHT receipts for the previous year – 2020/21 – were £5.35bn.
HMRC released its latest data on income tax this morning.
This compares to IHT receipts of £2.38bn in 2009/10 when the nil rate band was frozen at £325,000.
The band is next up for review in 2026, by which time Canada Life estimates it could have risen to around £500,000 if the band had increased in line with inflation.
The Office for Budgetary Responsibility (OBR) has previously projected that IHT receipts will rise to £8.3bn by 2026.
Julia Rosenbloom, tax partner at Financial Planning firm Evelyn Partners, said the latest figures from HMRC put pressure on the Government to review taxation, including IHT.
She said: “All eyes are now on the Conservative leadership campaign because whoever the membership vote and takes office as the next Prime Minister on 5 September will stamp their mark on personal taxation for the coming months and years.
“Families should not, however, be under any illusions that any tax cuts introduced will translate into tax cuts across the board. While Truss has made specific pledges on the likes of National Insurance and corporation tax, the outlook for personal taxes such as IHT is far from certain. Many families are already continuing to face higher IHT bills given that the nil rate band and residence nil rate band has been frozen until at least April 2026. Rising property prices are pushing more families into scope for IHT.
“Given Truss’s pledges to cut taxes elsewhere, it would be brave of a new Prime Minister and Chancellor to cut IHT and thereby reduce the revenue it brings into the Treasury.”
Keith Churchouse, Chartered Financial Planner at Chapters Financial, said: “With the change in Prime Minister due in September, and IHT being a topic close to many hearts and minds in counties across the UK, making positive changes might be the vote winner needed to get the new incumbent over the line in 2024.”
Les Cameron, head of technical at M&G Wealth, said the latest figures from HMRC demonstrate the need for Financial Planning.
He said: “The latest Government figures show that IHT planning can save families significant sums of tax, but planning requires action to be taken now and not in the future when it might be too late.
“Funding an IHT liability using a life policy held in trust is a solution for some as the policy will pay out a lump sum to the family on death to help pay the liability but arguably, you’re not really saving IHT with this option – you’re simply funding an arrangement in advance to cover it.”
Shaun Moore, tax and Financial Planning expert at Quilter, said rising IHT receipts show how vital it is for clients to have conversations around estate planning sooner rather than later.
He said: “With many more people likely to face a hefty IHT bill in the coming years, it remains vitally important that people start to have conversations with their loved ones to fully understand their estate and the value of it sooner rather than later. While it is not always the easiest conversation to have, it is far better to have it now than during more emotionally challenging times such as following a death.
“While the entire IHT take is small change for the government compared to other forms of tax, it is growing steadily and will always be in focus when it comes to the government looking for ways to plug holes in public finances. IHT is a complicated tax and one that requires a good level of knowledge to ensure you pay the right amount. In most people’s cases that will be nothing, but with house and other asset prices still on the rise, it is worth seeking professional financial advice to ensure you understand your estate and make the most of your allowances to help mitigate your IHT bill.”
Andrew Tully, technical director at Canada Life, said IHT is increasingly becoming a concern for wider sections of society.
He said: “The nil rate band for Inheritance Tax has been frozen for more than a decade and as a result is woefully lagging behind inflation. While IHT has historically been a tax of the very wealthy this is clearly no longer the case. With property prices soaring and most personal tax allowances including the standard and residence nil rate band frozen until April 2026, this is now a concern for larger sections of society as the IHT tax net widens.
“IHT is a very valuable tax for HMRC, delivering £6.1 billion to the taxman in 2021/22, £729 million more than the previous year. With the OBR predicting this will continue growing to an incredible £8.3bn by 2026. This year’s surge in income will partly be driven by the ongoing increase in house prices, as residential property makes up the largest share of most estates. There has also been a higher volume of wealth transfers due to Covid – partly due to more deaths in the elderly population, but also as some people make outright gifts to help family during this difficult period.”
HMRC also released some more detail IHT statistics for the 2019/20 tax year.
The largest exemption set against assets continues to be for transfers between spouses and civil partners. This was valued at £13bn in the 2019/20 tax year and used by 21,500 estates.
In the tax year 2019/20, 19,200 estates used the residential nil rate band threshold, and £4.1bn of chargeable estate value was sheltered from an IHT charge. This has led to the average amount of IHT paid per estate growing from £179,000 in 2014/15 to £216,000 as smaller estates dropped out of paying IHT.
