Recent data released by HM Revenue and Customs (HMRC) reveals that HM Treasury amassed a staggering £6.3 billion in inheritance tax receipts during the ten-month period spanning April 2023 to January 2024. This figure marks a significant £400 million surge compared to the corresponding period in the preceding year, underscoring a persistent upward trajectory in inheritance tax bills.
While only four percent of estates bear the brunt of this tax burden, the impact extends further, affecting a larger proportion of families. The combination of a freeze on inheritance tax thresholds and sustained growth in property prices is propelling the overall tax revenue upward.
Wealth Club, an advisory firm, estimates that for those liable to pay, the average inheritance tax bill could escalate to £238,000 in the 2023/24 tax year. Alarmingly, over 30,000 families may find themselves compelled to relinquish a portion of their inheritance to HMRC. This represents an abrupt 11.2 percent surge from the £214,000 average recorded just three years ago, accompanied by a notable 14.2 percent increase in the number of estates subject to the tax.
Nicholas Hyett, Investment Manager at Wealth Club, observes, “The government appears to be retracting from potential tax cuts in the upcoming March Budget. With inheritance tax becoming an increasingly lucrative revenue stream, the Chancellor may face challenges in reducing this widely unpopular tax. Any shortfall could necessitate higher taxes or reduced spending in other areas.”
Helen Morrissey of Hargreaves Lansdown, a business consultancy, emphasizes the uncertainty surrounding the efficacy of reducing the main tax rate. She notes that such a reduction might disproportionately benefit wealthier estates with larger liabilities. Instead, Morrissey suggests alternatives such as raising the longstanding £325,000 threshold or amalgamating it with the residential nil-rate band. This approach could potentially alleviate the tax burden on smaller estates, especially those inadvertently surpassing the threshold due to property value appreciation, sparing them from unexpected tax bills.
Furthermore, Morrissey suggests that increasing thresholds, including gifting allowances, could incentivize individuals to contemplate how their assets might support family members during their lifetimes. The debate continues on whether altering the main rate or adjusting thresholds offers a more equitable and effective solution to the ongoing challenges posed by inheritance tax.