Inheritance tax set for double digit annual growth as receipts hit £7bn – London Wallet

Inheritance tax receipts (IHT) from April to January now stand at £7bn – £700m more than the same period last year, according to new official data from HMRC.

The figures, published as part of the official statistics for tax received last month, also represent a £700m increase on top of last month’s figure £6.3bn.

In the 2023/24 tax year, IHT receipts reached £7.6bn, up from £7.1bn in 2022/23.

The OBR expects IHT receipts to hit £8.3bn by the end of March, reflecting double digit annual growth.

“This latest increase in the amount of Inheritance Tax (IHT) collected is driven in part by the ‘Great Wealth Transfer’ from the baby boomer generation, estimated at £5.5trn, said Helen Clarke, Irwin Mitchell partner specialising in advising high net worth individuals. “As baby boomers pass on their wealth, the value of estates subject to IHT has soared, fuelled by thresholds which have been frozen since 2009, and rising property values, leading to higher tax bills for many families.”

He continued: “The Nil Rate Band continuing to be stuck at £325,000, together with other new rules means further increases in IHT receipts next tax year are likely. Long-Term Residents’ (LTRs) will face IHT on their worldwide assets, affecting those who have been UK tax residents for at least 10 of the last 20 years.

“Additionally, trusts set up by non-UK domiciled individuals will see revised IHT treatment. If the settlor becomes an LTR, the trust’s assets will be subject to the relevant property regime, including ten-year anniversary and exit charges.”

With IHT rising, a growing number of families are looking to protect their estates, according to Ian Dyall, head of estate planning at wealth management firm Evelyn Partners.

He commented: “The inevitable monthly increase in inheritance tax receipts leaves little doubt that this will be another record tax year for IHT revenues as estates across the UK continue to grow in value and nil-rate bands remain frozen.

“This inflation-led boost to the Treasury coffers will already be accounted for in the fiscal forecasts. Unfortunately for the taxpayer, despite this fiscal drag and the measures at the Budget which will bring pensions into IHT from 2027 and squeeze business and farm assets harder, inheritances might not be out of the woods yet.

“Given the wide-ranging pressures on the public finances, with geo-political upheaval now prompting calls for greater defence spending, it might not be long before Rachel Reeves is again forced to seek new ways of boosting tax revenues. With the self-imposed limits on how she can do this, IHT remains one of the few ways the Chancellor can wriggle out of the fiscal strait-jacket.

“Pension pots will not become liable to IHT until April 2027 and the combined business and agricultural property relief exemption will not be cut to £1m until April 2026. While it seems unlikely further tax changes will be announced at the spending review in late March, the next autumn Budget could well stir speculation if the Chancellor has to cast around for a few extra billion to balance the books.

“One possibility is an overhaul of the gifting regime, as this would be a relatively easy way for the Treasury to extract a bit more from IHT without raising the headline rate or cutting the nil-rate bands. That could close off some of the options that families have been using to reduce their IHT liability, especially since the October Budget. We have seen many clients increase gifting since as far back as the election – some simply setting the seven-year clock ticking for potentially exempt transfers with large one-off gifts, others using lesser-known methods like gifts out of surplus income.

“Either way, as the trend is most definitely that many estates will face significantly higher IHT bills, with possibly fewer ways to mitigate them, then the option of insuring against the liability is also growing in popularity. Since October we have already seen many more clients seeking whole of life cover aimed at covering a future IHT bill so their beneficiaries will not have to foot it, and we expect to see many more do this in the future as it is not yet a widely understood option – particularly among families who are not taking professional advice.”