Inheritance tax (IHT) collections by HM Revenue and Customs (HMRC) have shown a significant uptrend. From April to July 2023, the receipts amounted to £2.6 billion, marking a £0.2 billion increase compared to the same timeframe in 2022. This surge in IHT collections is on track to set a new record, with projections indicating that the total for the 2023/24 financial year could reach £7.8 billion. If this trend persists, it will represent a 10% growth from the 2022/23 financial year, during which HMRC recorded a 17.1% annual increase in IHT collections, amounting to over £7 billion.
Several factors have contributed to this rise in IHT receipts. The buoyant housing market, despite its recent downturn, and the decision to freeze tax thresholds until 2027-28 have played significant roles. Additionally, higher volumes of wealth transfers following IHT-liable deaths and asset value increases have been influential. Notably, June 2023 saw the highest monthly total ever recorded for IHT receipts. This peak can be attributed to a combination of a few higher-value payments and the potential impact of recent interest rate hikes by the Bank of England. These rate increases might have prompted some estate representatives to settle their tax dues earlier than usual, although HMRC will need more comprehensive data to confirm this.
Julia Peake, a tax and estate planning specialist at Canada Life, opined that the buoyant housing market, even with its recent downturn, coupled with the freezing of tax thresholds until 2027-28, has significantly contributed to this potential record intake. She further highlighted that the Office for Budget Responsibility anticipates IHT to contribute a whopping £7.2 billion to the Exchequer this financial year.
It’s worth noting that while these figures might be beneficial for the Exchequer, they might not be as favourable for the general public. Stephen Lowe, the group communications director at Just Group, emphasized the importance of individuals assessing the total value of their estates, including current property valuations. He also highlighted the value of professional advice in helping individuals understand their potential tax liabilities and manage them effectively. For those seeking guidance, consulting with certified tax practitioners can be invaluable.
Historically, the largest annual rise in IHT collections over the past two decades was a 22.2% increase in 2015/16. However, the recent trends suggest that IHT is becoming a more significant component of HMRC’s total tax receipts, potentially accounting for 1% of the total in the 2023/24 financial year. Also, research by the peer-to-peer real estate investment platform, easyMoney, indicates that the 2022/23 financial year already saw a record-breaking 17.1% annual increase in IHT payments to HMRC. This surge meant that the HMRC amassed over £7 billion in IHT, marking the largest collection in UK history. To put this into perspective, this amount was equivalent to 0.9% of the total tax payments for that year.
If the current momentum continues, easyMoney projects that the IHT bill for the UK populace in the 2023/24 financial year could touch £7.8 billion, shattering all previous records. This would signify a 10% growth from 2022/23 and would account for 1% of HMRC’s total tax receipts for the year.
In conclusion, while the rising IHT collections might be a testament to the UK’s economic resilience and strategic financial decisions, it’s imperative for individuals to stay informed and prepared. As the landscape continues to evolve, proactive planning and consultation with professionals will be the key to navigating the intricate world of inheritance tax.
