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Inheritance tax (IHT) receipts are on course to “break all previous records,” with more experts calling for reform to the UK’s “most hated” tax.
HMRC revealed it had received £5.7bn in the nine months between April and December 2023. This intake is £400m more than the same period of 2022 – an increase of 7.5 per cent.
Analysts expect the Treasury to receive a record £7.6bn in IHT by the end of the tax year – comfortably topping last year’s £7.1bn in what would be a third record-breaking year in succession.
Currently Britons pay IHT after someone has died when the value of the estate exceeds £325,000.
The tax band rate remains at 40 per cent, but frozen IHT thresholds mean more estates face paying the controversial tax charge due to high house prices and rising values of other assets.
The average IHT bill is £239,000 in the current tax year with about 30,000 families having to pay up.
This represents an 11.5 per cent increase from the £214,000 average paid three years ago.
The figures will only increase pressure on Chancellor Jeremy Hunt to make changes to IHT in the Budget on 6 March – or the Conservative Party’s general election manifesto.
Stephen Lowe, communications director at retirement specialist Just Group, says: “We are now three-quarters of the way through the 2023-24 financial year and it is evident the Chancellor can once again bank on record-busting IHT tax receipts for a third successive year.
“Only a small proportion of households are affected by IHT, but the tax bites deep on those estates affected. Our research suggests there is a low level of understanding around IHT rules and thresholds, with the majority unaware of how much their estate must be worth to incur a tax charge.”
It was rumoured that Mr Hunt would scrap IHT entirely or cut the headline rate in his Autumn Statement, but this failed to materialise.
Shaun Moore, tax and financial planning expert at Quilter, cautioned: “Abolition of IHT would certainly split voters and it’s likely that Labour would fairly rapidly vow to bring it back in if they were to get in.”
Stevie Heafford, Tax Partner at HW Fisher, added: “With many looking to the Chancellor to scrap the UK’s most unpopular tax in March, we should remember that even the decision to unfreeze the nil rate band and increase it in line with inflation, would help many to escape the net of Inheritance Tax.”
The current £325,000 nil rate band has been at that level since 2009. The residential nil rate band was introduced on a phased basis between 2017 and 2020 and potentially gives an additional £175,000 nil rate band (making a total of £500,000) subject to certain rules.
Both are currently intended to be frozen until 2028.
