Inheritance tax receipts for April 2022 to January 2023 stood at £5.9bn, an increase of 15 per cent on the previous year, according to the latest data from HM Revenue & Customs.
According to the data, the figure is £0.9bn higher than at the same point last year.
The total inheritance tax take for 2021-22 - the last full financial year - was £6.1bn, meaning this year is already only £178mn short of that.
Stephen Lowe, group communications director at Just Group, said: “The chancellor has struck a seam of gold with recent inheritance tax receipts as he looks set to receive another record haul this financial year – and with more to come.
“Receipts are likely to race past official predictions for the next few years. The OBR forecast a tax-take of £6.7bn for the current financial year rising to £6.8bn by 2025-2026 but with receipts averaging £588mn a month this year, inheritance tax receipts are on track to exceed £7bn this year.
“The combination of frozen thresholds and property prices that have soared over the years mean that receipts could continue to grow over the coming years.”
Lowe said while it is good news for the Treasury, there will be many people for whom an inheritance tax bill will be a “nasty shock”.
“These figures provide a reminder for people to assess the value of their estate regularly, taking into account an up-to-date valuation of any property they own,” he said.
Likewise, Andrew Tully, technical director at Canada Life, said there was no ignoring the fact that the UK is moving in an upward trend and is on track to break last year’s record of £6.1bn by more than 10 per cent.
“The current tax-free allowance of £325,000 is frozen until 2027/28,” Tully said. “This freeze, plus house prices skyrocketing in recent years, and soaring inflation, mean that more and more families could face an unforeseen and unwelcome inheritance bill from the tax man.
“Indeed, the belief that IHT is strictly for the affluent no longer applies.”
Under UK law, IHT is paid at 40 per cent on assets valued above a certain threshold. Currently around one in every 25 estates pay the tax.
Rachael Griffin, tax and financial planning expert at Quilter, said the latest figures highlight just how “lucrative” the government’s freeze on tax allowances and thresholds is likely to be.
“Given the ongoing cost of living crisis, many people have now received increases in pay and some will have been pushed into the next income tax band as a result,” she said.
“This is exactly what the government had been banking on when the chancellor confirmed the freeze on income tax thresholds during his Autumn Statement – thanks to fiscal drag, as more people move up the income tax bands while thresholds remain unchanged, the healthier government coffers will become.”
With the Spring Budget fast approaching, Griffin said the chancellor will be pleased that the changes he announced during his last statement are already having the desired effect.
“Inheritance tax has historically been considered a tax for only the very wealthy, but the current freeze coupled with inflated house prices has seen far more people caught by the net,” she said.
“Even those who may not consider themselves wealthy could now end up paying IHT as their property value has grown so much.”
Reducing the tax bill
Tully said there are a number of things that can be done to reduce IHT bills.
“These include setting up a trust, making full use of gift allowances which allow you to pass on money to family while reducing your estate, and making a will and leaving a legacy to charity,” he said.
“Pensions are also normally excluded from your estate for IHT purposes. You can potentially pass on your pension in a tax-efficient way so take this into account when deciding which assets you use to provide an income in later life”
Laura Hayward, tax partner at Evelyn Partners, also said families should look closely at the ways of reducing or eliminating IHT bills.
“Gifts you make to other individuals are generally not subject to IHT unless you die within seven years,” she said. “There is also an annual gift allowance of up to £3,000 per tax year, and this will not be subject to IHT even if you do die within seven years.
“This £3,000 annual allowance can only be brought forward for one tax year, so if you have assets to spare you may want to consider using up this and last year’s allowance before April 5. Families should also ensure they invest in the most tax-efficient manner possible.”
sonia.rach@ft.com
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