Treasury collects record high £2.6bn in IHT receipts in just 13 weeks

The latest figures from HM Revenue & Customs (HMRC) show a record breaking level of inheritance tax receipts were collected in the 13 weeks between April and July 2023.  

The total amount netted in this time was a staggering £2.6bn, £0.2bn higher than in the same period the previous year, which itself was a record breaking amount. This meant that the June 2023 tax receipts figures were the highest monthly total ever recorded in the UK.  

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What is IHT? 

Inheritance Tax (IHT) is a tax levied by the Government on the estate of a deceased person in the UK. This includes all of their assets including property, personal belongings, and investments.  

However, this levy only applies to the total value of the estate that exceeds the IHT threshold or ‘nil-rate band’. As of the 2023/24 tax year, the threshold is set at £325,000. Anything above £325,000 could be subject to up to 40% inheritance tax.  

Those passing down their main residence to their direct decedents can also pass down as additional £175,000 free of inheritance tax, known as the residence nil rate band. This means you can pass down up to £500,000 per person free of inheritance tax. 

Why are IHT receipts continuously on the rise? 

The number of estates across the UK that are being pulled into the IHT net are increasing each year.  

Total IHT receipts collected by the Government have been steadily on the rise, not least as the nil rate band threshold has remained the same since 2009 and is now frozen for a further five years. This was initially announced by the then Chancellor, Rishi Sunak, in his 2021 Budget. The Budget outlined that the IHT threshold, among others, would be frozen for five years until 2026. 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 (excluding the possibility of the residence nil rate band) exceeds £325,000. Anything below this threshold is tax-free.  

However, due to the rising rate of inflation coupled with increasing property values over the years across the UK, the freeze essentially means that a greater number of people have crossed the inheritance tax nil rate thresholds each year. Many have been calling this move an example of ‘shadow tax’, as the freeze ultimately means an increasing number of Britons will fall into the tax threshold as the thresholds haven’t kept pace with rising prices. This means that by the time the freeze ends in April 2028 the Government will have collected billions in extra inheritance tax. 

The inheritance tax allowance of £325,000 was increased from £312,000 on 6 April 2009.  This means the IHT nil rate band has in fact remained unchanged for over 14 years now and now will be kept frozen until at least 5 April 2028.  That’s a staggering 19 years of higher taxes on death. To put that into perspective, according to Nationwide’s house price index for the second quarter 2009 the average house price was just £154,066 compared to £261,995 for the same period this year. 

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. 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.   

With the addition of the IHT freeze in play until 2028, it’s more important than ever to seek professional advice to help find the best way to minimise the bill on your estate and loved ones . If you’re interested in how to manage your IHT 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.

In our latest webinar The Art of Avoiding Inheritance Tax, experts Steffan Alemanno and Harry Donoghue showcase the steps you can take to pass down your wealth in the most tax efficient way. Watch it back here! 

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate estate planning or tax advice.