Taxman nets £6.4bn in IHT receipts, up £0.9bn

The latest figures from HM Revenue and Customs (HMRC) revealed that inheritance tax (IHT) receipts were up £700m between April and December last year, totalling £5.3bn. In their February 2023 report, HMRC revealed that this trend had continued with tax take up at a sizable £6.4bn from April 2023 to February 2023, which is up £0.9bn on the same period the previous year.

This figure already beats the £6.1bn received by the Treasury throughout the entire 2021/22 financial year, prompting another record-breaking year for IHT receipts.   

Why are more people paying Inheritance Tax? 

One of the major factors in the rising amount of inheritance tax collected by the Government comes down to the freeze on allowances which has seen no increase since 2009. The freeze to the nil-rate band (NRB) and residence nil-rate band (RNRB) until 2026 was initially announced by the then Chancellor, Rishi Sunak, in his 2021 Budget. However, after Chancellor Jeremy Hunt’s Autumn Statement, it was confirmed that the freeze would be extended a further two years until April 2028. 

As it stands for the current tax year 2023/24, you will only have to pay inheritance tax if the value of your estate exceeds the NRB at £325,000; anything below this threshold is tax free. If you are passing down your main residence to a direct descendent (e.g. child/step-child/grandchild), the value of the property is also exempt from inheritance tax up to the value of the RNRB at £175,000.

However, due to the rising rate of inflation coupled with the extremely high increases in property value across the UK, the freeze essentially means that a greater number of people will cross the inheritance tax threshold each year until April 2028. Many have been calling this move an example of ‘shadow tax’, and it ensures that the Government will continue to rack up billions in inheritance tax for the foreseeable years to come, with independent forecasts around £7.8bn annually before the freeze ends.

Other contributing factors include the pandemic and the resulting strain on the NHS, which has meant a higher mortality rate in the population as a whole, and the suddenness of the outbreak, after which many people who were previously in reasonable health died suddenly, leaving their next of kin unprepared and subject to higher-than-usual taxation due to a lack of inheritance tax planning. 

Figures from HMRC:  

Inheritance Tax (IHT) 

Receipts for April 2022 to February 2023 are £6.4 billion, which is £0.9 billion higher than in the same period a year earlier. 

“Figure 11 above contains the monthly receipts patterns in each financial year since 2019 to 2020 and shows: 

• Receipts in April 2019 were particularly high, reflecting announcements (and subsequent delays and cancellations) of rises to probate fees in England and Wales, which is likely to have caused executors to bring forward tax payments to avoid the prospective higher fees 
• The lower receipts in April and May 2020, were due to a temporary issue where HMRC were unable to accept cheques for payment of IHT due to COVID-19, which was resolved, hence the peak in June 2020 receipts 
• Higher receipts in October to November 2020, March to August 2021, and March 2022, are expected to be due to a combination of, higher volumes of wealth transfers that took place during the COVID-19 pandemic, recent rises in asset values, and the Government’s March 2021 decision to maintain the IHT tax free thresholds at their 2020 to 2021 levels up to and including 2025 to 2026 
• The higher receipts in June 2022 and November 2022 can be attributed to a small number of higher-value payments than usual.” (HM Gov't: April, 2023)

We can help minimise your IHT bill 

With the addition of the IHT freeze in play until 2028, it's Important to seek professional advice to help navigate the fast-moving taxation environment. If you’re interested in how to manage your inheritance tax bill to ensure the best possible wealth protection for you or your family, we can help. Give us a call on 0333 323 9065 or book a free non-committal initial consultation with a member of our team to find out more.

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Please note, the Financial Conduct Authority (FCA) does not regulate estate planning or tax advice.