Inheritance tax receipts hit £1.2bn in April and May, a £100m rise year-on-year, according to figures released by HMRC this morning.
Financial Planners expect HMRC’s take to rise further, with more estates being caught in the IHT net.
Rachael Griffin, tax and Financial Planning expert at Quilter, said continued rises in IHT receipts could force the Government to announce a reform of the tax ahead of the next general election.
She said: “Amidst calls for the government to overhaul its dated inheritance tax rules, this morning’s HMRC tax and national insurance receipts illustrate exactly why the Chancellor may resist reform for as long as possible.
“Today’s data reports IHT receipts filling government coffers to the tune of £1.2 billion in April to May 2023, which is £0.1 billion higher than the same period a year earlier. The 2022/23 IHT take reached a record-breaking £7.1 billion, and if the tax take continues to grow at its current pace, we can expect these figures to reach new highs again.
“While IHT is not the government’s most lucrative tax, it has increased significantly in recent years as frozen thresholds and higher house prices led to more people being caught by in its net. Abolishing it altogether would punch a hole in the budget, compounding an already bleak economic outlook.
“However with the next general election on the horizon in 2024, an increasingly under-fire Conservative government running out of time to drum up support may believe it has no choice but to reform one of the most hated taxes in Britain as a way to curry favour framed as helping more Brits pass on wealth to help the next generation. There are various mechanisms in which they could do this, but revising the threshold or cutting the 40% rate would be simplest.”
Evelyn Partners does not expect any reform to come to IHT soon.
Laura Hayward, tax partner at Evelyn Partners, said: “IHT has become a real hot potato in recent weeks, with some putting pressure on the government to commit to abolish the tax. However, it’s important to remember that no decisions have been announced as of yet and while this debate bubbles away more families are being dragged into paying IHT.
“Today’s fresh data release from HMRC shows the extent to which the Treasury is continuing to benefit from ever increasing IHT receipts. What’s more, given inflationary growth of asset values coupled with frozen allowances, as things stand the cash cow that is IHT looks set to be very lucrative for the Treasury for many years to come. The Office of Budget Responsibility’s last report forecasts that an expected £38 billion will be raised over the next five years and that in 2027/8 IHT receipts will rise to a sizeable £8.4 billion.
“Families should use today’s update from HMRC as a reminder to take a close look at their tax planning with a professional adviser to ensure they don’t pay more tax than they need to. Making gifts can be one way of reducing or eliminating IHT bills.”
Paul Barham, partner at Mazars, said: “The rocky property landscape hasn’t yet fed through to the government tax take on estates with the Treasury collecting £1.2 billion in a couple of bumper months. With the government’s decision to freeze IHT rates until 2025/26 increasing numbers of estates are being swept, often unexpectedly, into the IHT threshold.”
