Inheritance Tax Take Continues To Rise

Inheritance tax receipts for April 2021 to March 2022 were £6.1bn, which is £0.7bn higher than in the same period 12 months earlier, latest data from HM Revenue & Customs (HMRC) revealed.

The government data also showed receipts in April 2017 to May 2017 and March 2019 and April 2019 were particularly high.  HMRC believes this reflected announcements of rises to probate fees in England and Wales in February 2017 and November 2018 and is likely to have caused executors to bring forward tax payments to avoid the prospect of higher fees.

The latest data was issued by HMRC on 26 April 2022 and may be reviewed at:

https://www.gov.uk/government/statistics/hmrc-tax-and-nics-receipts-for-the-uk/hmrc-tax-receipts-and-national-insurance-contributions-for-the-uk-new-monthly-bulletin

 

Due to a temporary issue with HMRC in relation to Covid-19, cheques for payment of inheritance tax could not be accepted, which caused inheritance tax receipts to be lower in April and May 2020. The peak in June came after the issue had been resolved.

HMRC also said that the higher receipts in October 2020, November 2020, March to August 2021 and March 2022 were assumed to be due to higher volumes of wealth transfers that took place during the Covid-19 pandemic. However, this cannot be verified by HMRC until full administrative data becomes available, it added.

The latest reported year-on-year rise in inheritance tax collections will be welcomed by a Treasury that currently needs every extra pound it can get to pay for the government’s ambitious spending commitments against a backdrop of ongoing global uncertainty.

Given that the Office for Budget Responsibility recently forecasted that the Treasury will receive £37bn in inheritance tax payments over the next five years, now is the time to look carefully at inheritance tax planning. Even before any possible changes to inheritance tax in the next Budget later this year, probably in the autumn, many people can expect to see increased inheritance tax bills following the Chancellor’s decision to freeze both the nil rate band and residential nil rate band until at least April 2026.

A key contributor to the increase in inheritance tax receipts is the housing market which increased relentlessly over the same period, in which stamp duty holidays drove the UK to a record high average house price of an eyewatering £360,101, according to Rightmove.  With thresholds frozen, the increase in inheritance tax revenue is viewed as a stealth tax, as more and more people are dragged into the inheritance tax net following the sale of their homes.

The latest figures show inheritance tax receipts between April 2021 and March 2022 were up by £700m to £6.1bn, a 13% increase compared to the previous year.

There have also been a higher volume of wealth transfers due to Covid – partly due to more deaths in the elderly population, but also as some people make outright gifts to help family during this difficult period.

 

Stephen Parnham