Inheritance tax receipts are on course to increase to a new record this financial year, as early data indicates takings will surpass official forecasts.
HM Revenue & Customs published figures on Tuesday which showed the amount raised in April and May rose by 9.1 per cent year-on-year to £1.2bn. If this increase held for the entire year to next April, the tax take would hit £7.7bn in 2023-24.
The Office for Budget Responsibility in March forecast IHT receipts would reach £7.8bn only in 2027-28.
The numbers for the start of 2023-24 follow a record 2022-23 financial year in which the exchequer raised £7.1bn through inheritance tax. Increases in IHT receipts have been driven by frozen thresholds and rising asset values, especially for property.
“Inheritance tax looks set to be the gift that keeps on giving for the chancellor,” said Stephen Lowe at retirement specialist Just Group. He said the UK general election, due next year, meant politicians were exploring possible tax cuts, with IHT one option.
Inheritance tax is a contentious topic for some voters, who feel they are being taxed twice as the assets have usually been bought from taxed income, particularly as more households now fall under the IHT threshold.
In November last year, chancellor Jeremy Hunt confirmed he would extend a freeze on the £325,000 nil-rate band — the basic tax-free individual allowance for IHT — for a further two years until 2027-28 to help plug a gap in public finances.
People can also take advantage of the “residence nil-rate band” to pass on a main residence to their children. This raises their allowance by £175,000, enabling them to pass on £500,000 before IHT is applied. For a couple this rises to £1mn.
House prices have continued to rise despite months of volatility in the mortgage market denting demand. Office for National Statistics data showed that the average UK house price rose 3.5 per cent to £286,000 in the year to April 2023. The equivalent figure is £534,000 in London.
Around 7 per cent of estates are expected to pay inheritance tax, according to the Treasury.
Laura Hayward, tax partner at accountants Evelyn Partners, cautioned that the government had not signalled any intention to change its approach on IHT.
She added: “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.”
