‘Amazing rise in income’: Taxman earns a further £300m in inheritance tax

Tuxman sees ‘staggering rise’ in IHT receipts: £300m more paid out in recent months than last year with skyrocketing house prices to blame

The government secured an extra £300m in inheritance tax receipts between April and June 2022 compared to last year, with house prices blamed for the rise.

New data from HMRC showed that a 19 per cent increase in revenue took income to £1.8 billion for the period.

It said the record high revenue in June 2022 could be attributed to a small number of payments of higher value than usual.

She also added that recent spikes in asset values ​​and the government’s decision last year to maintain IHT tax credit limits at 2020 to 2021 levels through 2025 to 2026 – means people are increasingly likely to get caught.

With current inheritance tax limits set to stay in place through 2026, HMRC will continue to increase receipts

Andrew Tully, technical director at Canada Life, said: ‘HMRC is seeing an impressive rise in income from the IHT providing £1.8 billion to the tax officer already in this financial year, an increase of £300 million over the same period last year.

“This is a tax that no longer only affects the wealthy in society but increasingly catches up with families who are unprepared or simply unaware.”

He adds: “The frozen border means that HMRC has already doubled the tax levy from the IHT over the past 10 years.

He added, “This increase will be partly due to the continuous increase in house prices, with residential properties making up the largest share of most properties.

There has also been a high volume of wealth transfers due to Covid – partly due to an increase in deaths among the elderly, but also because some people are giving out express gifts to help the family through this difficult time.

“Both the zero rate band and the accommodation rate band have been frozen until at least April 2026, so we can expect IHT receipts to continue to rise.”

Tax receipts for the first few months of this fiscal year exceed the amount HMRC collected during the same period in previous years

Tax receipts for the first few months of this fiscal year exceed the amount HMRC collected during the same period in previous years

Frozen tax thresholds and a booming real estate market are the main drivers of growing inheritance tax returns, said Stephen Lowe, director of group communications at retirement specialist Just Group.

While only a small proportion of people pay inheritance tax, the amount paid has more than doubled over the past decade from £752m in the first three months of 2012 to more than £1.5bn in the first three months of 2022.

OBR predicts that up to 6.5 percent of estates may be subject to inheritance tax by 2026 — nearly double the 3.7 percent figure for the latest fiscal year.

The Office of the Balance Sheet also revised forecasts for inheritance taxes by an average of £400m a year compared to the October 2021 estimate due to an increase in the death rate as well as higher house prices.

Residential property is usually the most valuable component of real estate driven by IHT and the House Price Index revealed yesterday that the average value of property in the UK has risen by 13 per cent over the past year, so many people could come close to or exceed the bottom line. without realizing it. .

We tend to think of only property in London and the South East as being of sufficient value to attract inheritance tax, but this is no longer automatically the case.

House values ​​in the South West, for example, are up 17 percent year-on-year, and those in the East of England and East Midlands are up 15 percent, adding tens of thousands to homeowners’ property values.

It makes sense for people to keep track of the potential size of their holdings and the tax rules that will apply to them.

There are options available to people, such as lifetime mortgages, that can unlock some of the restricted brick-and-mortar wealth.

These enable people to pass on wealth while they are still alive and can see the benefits it brings to the recipients; It may also help reduce any inheritance tax on their estate.

Structured professional advice can provide valuable assistance to people managing their finances later in life, including knowing how their estate affects their estate planning.

What measures to reduce inheritance tax should be a priority?

The procedure for reducing inheritance tax generally falls into three broad categories, says Ian Dale of Evelyn Partners. These are to take advantage of benefits and waivers, to reduce the size of your assets, and to reduce liability using life insurance.

Dyall says he initially takes new clients through the following checklist, in the order presented here:

1) Do they have any existing life insurance policies that are not currently written into the trust, and that can be changed to prevent payments from being made to their property

2) Have they inherited any money in the last two years that would increase the amount of their taxable property, but that could be redirected to someone else by way of an adjustment deed

3) If one of the partners dies, do they benefit from their zero rate tax band of £325,000 in addition to their tax band

4) Do they want to give gifts to reduce the amount of their possessions

5) Do they want to create credit to reduce the size of their holdings

6) Do they want a life cap, a seven-year plan to offset any gifts that might not be tax deductible if they died during that time

7) Do they want to put money into investment vehicles that qualify for the business property exemption?

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