Inheritance Tax  

HMRC ‘rakes in’ extra £300mn of inheritance tax

HMRC ‘rakes in’ extra £300mn of inheritance tax
Miles Willis/Bloomberg

HM Revenue & Customs collected an extra £300mn in inheritance tax between April and June this year, with experts dubbing the increase “an incredible spike”.

Receipts totalled £1.8bn for the period, compared to £1.5bn over the same three months a year earlier. 

The latest rise is a further increase on the last set of reported figures, which prompted warnings for homeowners whose property values have gone up this past year.

“The Treasury raked in an extra £300mn from inheritance tax,” said non-advisory broker Wealth Club founder Alex Davies.

“This increase is being fuelled by soaring house prices and years of frozen allowances which are now being decimated further by rampant inflation.”

Last year, the government decided to freeze tax free thresholds until 2026.

Just 4 per cent of estates pay inheritance tax today, according to Wealth Club. But given the freezes on inheritance tax thresholds, Davies said it is likely the estates of many individuals with more regular incomes and average value homes, will end up getting caught out by this most hated of taxes. 

“With the government purse under pressure from all angles there is unlikely to be any respite from this soon,” he added.

[Source: HMRC] Monthly receipts 2019-2020 to 2022-2023

Technical director at Canada Life, Andrew Tully, said HMRC was witnessing “an incredible spike” in income from inheritance tax, having already delivered £1.8bn to the taxman this financial 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,” said Tully. 

“The frozen thresholds mean that HMRC has already doubled its tax take from inheritance tax over the past ten years.”

Tully agreed with Davies that the surge in inheritance tax bills has been - and will continue to be - driven by the ongoing increase in house prices, with residential property making 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,” he explained.

HMRC’s own analysis echoes this. The government department has put the record highs down to a combination of bigger wealth transfers during the Covid-19 pandemic, recent rises in asset values - such as property, and the decision to freeze tax free thresholds.

Quilter tax and financial planning expert, Shaun Moore, said inheritance tax has increasingly become a lucrative area for the Treasury.

“Inheritance tax receipts have seen month-on-month increases for a long while now, showing the government continues to gradually increase tax revenues without significantly increasing the burden on taxpayers,” Moore explained.

She said the average property price has crept closer to the standard nil rate band and residence nil rate bands which determine how much people pay in inheritance tax.

With these bands frozen, Moore said the average property price will only inch closer.