Taxman sees ‘incredible spike’ in IHT receipts: Extra £300m was paid in recent months compared to last year with house price rises blamed
The Government took in an additional £300million from inheritance tax receipts between April and June 2022 compared to last year, with increasing house prices being blamed for the rise.
The 19 per cent rise in the receipts took the income up to £1.8 billion for the period, new data from HMRC shows.
It said the record high receipts in June 2022 can be attributed to a small number of higher-value payments than usual.
It also added that recent rises in asset values and the Government’s decision last year to maintain the IHT tax free thresholds at 2020 to 2021 levels up to and including 2025 to 2026 – which will mean people are increasingly likely to be caught.
With current inheritance tax thresholds set to remain inplace until 2026 HMRC will continue to see receipts increasing
Andrew Tully, technical director at Canada Life, said: ‘HMRC is witnessing an incredible spike in income from IHT delivering £1.8billion to the taxman already this financial year, £300million higher than the same period last year.
‘This is a tax that is no longer just affecting the very wealthy in society and is increasingly catching out families who are unprepared or simply unaware.’
He adds: ‘The frozen thresholds mean that HMRC has already doubled its tax take from IHT over the last 10 years.
‘This surge will partly be driven by the ongoing increase in house prices, as residential property makes up the largest share of most estates.
‘There has also been a higher volume of wealth transfers due to Covid – partly due to more deaths in the elderly population, but also as some people make outright gifts to help family during this difficult period.
‘Both the nil rate band and residence nil rate band are frozen until at least April 2026 so we can expect to see IHT receipts continue to rise’
Tax receipts for the first few months of this financial year are outstripping the amount HMRC took in over the same period in previous years
Stephen Lowe, group communications director at retirement specialist Just Group, said that frozen tax thresholds and the booming property market were key drivers of growing inheritance tax receipts.
‘While only a small proportion of people pay inheritance tax, the amount being paid has more than doubled over the past decade from £752million in the first three months of 2012 to more than £1.5billion in the first three months of 2022.
‘The OBR forecasts that as many as 6.5 per cent of estates could be liable for inheritance tax by 2026 – nearly double the 3.7 per cent that the figures show for the latest financial year.
‘The OBR also revised inheritance tax forecasts up by an average of £400million a year compared to October 2021 estimates because of increased mortality as well as higher house prices.
‘Residential property is typically the most valuable component of IHT-paying estates and yesterday’s house price index revealed that the average UK property has risen by 13 per cent in value over the past year so many people could be approaching or surpassing the threshold without realising it.
‘We tend to think only properties in London and the South East as being of a sufficient value to attract inheritance tax, but that’s no longer automatically the case.
‘The value of homes in the South West, for example, are up by 17 per cent year-on-year and those in the East of England and East Midlands are up by 15 per cent, adding many tens of thousands to the value of homeowners’ estates.
‘It makes good sense for people to keep track of the likely size of their estate and the tax rules that will apply to it.
‘There are options available to people, such as lifetime mortgages, that can unlock some of the wealth tied up in bricks and mortar.
‘These enable people to pass on wealth while they’re still alive and can see the benefits it brings the recipients; it may also help to minimise any inheritance tax on their estates.
‘Professional, regulated advice can provide valuable help for people managing their finances in later life, including working out how their property may impact their estate planning.’
Which inheritance tax cutting measures should be a priority?
Action to cut inheritance tax generally falls into three broad categories, says Ian Dyall of Tilney. These are to make use of allowances and relief, to reduce the size of your estate, and to cut the liability using life insurance.
Dyall says he initially takes new clients through the following checklist, in the order given here:
1) Do they have any existing life insurance policies not currently written in trust, which can be changed to prevent payouts getting rolled into their estate
2) Have they inherited any money in the past two years that would increase the size of their taxable estate, but which could be redirected to another person via a deed of variation
3) If a partner has died, are they making use of their nil rate tax band of £325,000 in addition to their own
4) Do they want to make gifts to reduce the size of their estate
5) Do they want to set up a trust to reduce the size of their estate
6) Do they want to take out life cover, such a seven-year term plan to offset any gifts that may not be tax-exempt if they die during that period
7) Do they want to put money in investment vehicles that qualify for business property relief