Experts react over IHT receipts leap to £3.1bn

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Experts react over IHT receipts leap to £3.1bn

Inheritance tax (IHT) receipts for April to September this year were £3.1bn, £0.7bn higher than the same period 12 months earlier, highlighting the need for effective estate planning, according to experts

Official figures from HM Revenue & Customs (HMRC) published today (21 October) revealed the increase.

Heather Owen, financial planning expert at Quilter said IHT reform remains unlikely.

"With the Budget fast approaching, the rumour mill has begun and questions surrounding inheritance changes are beginning to form, with some suggesting, or perhaps hoping, it could be scrapped altogether," Owen said. "While IHT raises relatively little in comparison to the Chancellor's growing list of spending projects, a change of this magnitude is highly unlikely as the Treasury needs every penny it can get right now."

Families hit earlier in the year by the nil rate band and residence nil rate band freeze - which will remain unchanged until April 2026 at £325,000 and £175,000 respectively - were hoping for reform, according to Owen.

"The government continues to need to raise funds to pay for the costs of Covid-19 support schemes as well as reform commitments in other areas such as health and social care, while also dealing with the challenges posed by soaring energy costs," said Julia Rosenbloom, tax partner at Smith & Williamson.

She added that ahead of next week's Budget, Chancellor Rishi Sunak will, therefore, be looking closely at all possible areas he can tap for additional revenue, not least from personal taxes such as IHT to boost the Treasury's spending power.

In her view, prime minister Boris Johnson's decision to break a manifesto promise with the introduction of the health and social care levy demonstrated the government is not afraid of tax rises.

The outlook for taxes is uncertain, she said. "There have been a number of reports published by the likes of the Office of Tax Simplification as well as an All-Party Parliamentary Group on how IHT could be reformed, which present the Chancellor with plenty of possible options for change.

"Areas of focus in the studies have included the rules on lifetime gifts, the exemptions, and the CGT-free uplift on death.

"Given this uncertainty, I'd encourage people to start thinking about their tax planning sooner rather than later and make the most of current allowances before any changes are introduced. Investing tax-efficiently and considering options such as gifting could ensure that more of your assets are passed on to family members or charitable causes."

Andrew Tully, technical director at Canada Life said The Chancellor has little wiggle room around IHT as the tax thresholds remained frozen.

"Higher volumes of wealth transfers during the pandemic have trigged IHT charges on estates. With IHT tax receipts on the rise, now is the time to put in place effective estate planning," he added.

In light of an uptick in demand for advice around IHT earlier this year,  HRMC launched an IHT tool in July via the government website to help consumers calculate whether they will need to pay the tax. The online tool can be used by the public to quickly calculate how much IHT liability their estate would be open to.