Inheritance Tax  

Inheritance tax take jumps 17%

Inheritance tax take jumps 17%

The latest rise in inheritance tax collections will be welcome news for the Chancellor, as he ensures the country’s finances stay on track while dealing with the Omicron variant.

Inheritance tax receipts for April to November were £4.1bn, a rise of £600m compared with the same period in 2020, according to the latest set of official figures.

HM Revenue and Customs said it had expected higher receipts in October and November 2020 and between March and August this year due to higher volumes of wealth transfers that took place during the Covid-19 pandemic, though it said it could not verify this until full administrative data becomes available.

Julia Rosenbloom, tax partner at Smith & Williamson, said: “The latest reported year-on-year rise in IHT collections is an early Christmas present for the Chancellor who needs to do everything he can at the moment to sure up the country’s finances while the impact of the Omicron variant of Covid-19 remains unknown. 

“As if the need to pay for the ambitious spending commitments announced in the last Budget isn’t enough, the threat of Omicron could require the Treasury to find more money for compensating businesses if there is a need to shut down parts of the economy to slow the spread of the virus, and tax receipts could therefore be vital in the months ahead.”

Rosenbloom warned the Chancellor could be tempted to increase personal taxes in the next Budget if the Omicron variant continues to cause issues.

Shaun Moore, tax and financial planning expert at Quilter, said: “The higher tax take is a continued demonstration of the Chancellor’s fiscal drag, which is slowly increasing government tax revenues without seeming to be too much of a burden on taxpayers."

He pointed to three ways to lower an IHT bill - making full use of the nil-rate and residence nil rate bands, gifting to family members, and making more significant gifts.

This tax year, people can pass on up to £175,000 of property tax-free, which is effectively doubled to £350,000 when combined with the allowance of a spouse or civil partner. 

This is then added to the inheritance tax allowance – or nil rate band – of £325,000, meaning it is possible to pass on £1m inheritance free as a couple.

Moore said: “Gifts to spouses or civil partners are completely free of IHT and each tax year you can also give away up to £3,000 worth of gifts with your annual exemption, so as a couple you could gift £6,000 a year. 

“In addition, there is no limit on excess income - above expenditure - that can be gifted.

“As well as reducing the taxable estate value, gifting is particularly useful for estates above £2m impacted by the RNRB taper as the gifts can immediately reclaim the extra band."

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