Inheritance tax (IHT) receipts reach a new high
The Numbers
Inheritance tax (IHT) receipts have reached a new high, with HMRC reporting £1.4 billion in revenue from April to May 2024. This represents a 16% increase compared to the same period last year.
The Office of Budget Responsibility forecasts that the percentage of deaths resulting in IHT payments will continue to rise, reaching 6.3% by 2028/2029. This is the highest level since the 1970s, significantly higher than the 2.7% rate in 2009/2010.
Reasons for Inheritance Tax new highs
Several factors are contributing to this trend. One significant driver is the transfer of wealth from the wealthy baby boomer generation. Additionally, the rising cost of living, including higher house prices and interest rates, has pushed more estates into the IHT bracket due to frozen tax thresholds.
While there’s no guaranteed way to avoid Inheritance tax, it’s more important than ever for individuals to plan their estates effectively. The recent election of the Labour government, which has pledged to crack down on tax avoidance, has increased scrutiny of IHT compliance.
HMRC Expectations on Inheritance Tax
HMRC has been actively investigating unpaid IHT, recovering £1.39 billion in the past five years. This uncertainty underscores the need for individuals to take proactive steps to manage their estates.
As more estates exceed the nil-rate bands and more assets become taxable, inheritance tax revenue is expected to continue rising. The government may capitalize on this trend to address budget shortfalls. There are growing calls to reduce certain IHT reliefs and expand the tax base to include defined benefit pension pots.
Read the help guides from HMRC.
Tax warning
The rising IHT burden could lead to renewed discussions about increasing the tax rate. Meanwhile, the ongoing freeze on income tax thresholds and rising income tax and NI receipts may challenge the government’s pledge to avoid taxing working people.
The recent increase in inheritance tax revenue ahead of the government’s budget may reignite discussions about raising the tax.
Contact us today if you wish to discuss your estate planning.
