In Focus: Tax Year End  

IHT figures a 'wake-up call' for families

IHT figures a 'wake-up call' for families

The latest inheritance tax figures should be a ‘wake-up call’ for families to think carefully about their tax planning, an expert has said.

Figures from HM Revenue and Customs released today (March 22) showed that inheritance tax receipts between April 2021 and February this year were £5.5bn, £700mn higher than the same period a year earlier.

HMRC noted that receipts were higher in October and November 2020, and between March and August last year, and it expects this to be due to the higher volumes of wealth transfers that took place during the pandemic, though it is still waiting for the full data in order to confirm this.

Monthly inheritance tax receipts

Source: HMRC

Julia Rosenbloom, tax partner at Tilney Smith & Williamson, said inheritance tax receipts are the “gift that keeps giving” for the Treasury.

“While the revenue will prove useful to the government to help pay for its ambitious spending programme, this latest update from HMRC should be a wake-up call for families to think carefully about their tax planning,” she said.

Although the outlook for personal taxes in the years ahead is far from certain, even without any changes to the way inheritance is taxed, many people can still expect to see increased bills, she said.

This is due to the freezing of the nil rate band and residence nil rate band until at least April 2026, she said, bringing more estates into scope due to rising property values.

“Families should take professional advice and use their current tax allowances before any possible changes are introduced,” she added.

By planning ahead, and considering investing tax-efficiently or making gifts to family members (which may become increasingly welcome given the increase in the cost of living), there are a number of areas where an IHT bill could be reduced or eliminated. 

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said although it has been a bumper year for HMRC, and it is positive to see people going back to work, the data shows the heavy toll the pandemic has laid on society.

She also cautioned savers over future rises, saying: “While we hope the number of transfers will drop as the pandemic claims fewer lives, we will still see more estates become liable over the coming years as the freezing of inheritance tax thresholds continues to bite.”