‘Incredible increase in revenue’: Taxman raises additional £300m in inheritance tax

Taxman sees ‘incredible rise’ in IHT receipts: An extra £300m paid in recent months compared to last year and house price increases blamed

The Government received an extra £300m from inheritance tax receipts between April and June 2022 compared to last year, with rising house prices blamed for the rise.

The 19 percent rise in receipts took revenue to £1.8bn for the period, new data from HMRC shows.

He said the record receipts in June 2022 can be attributed to a small number of larger-than-usual payments.

He also added that recent increases in asset values ​​and the government’s decision last year to keep IHT tax-free thresholds at 2020 to 2021 levels up to and including 2025 to 2026 will mean that it is increasingly people are likely to be caught.

With the current inheritance tax thresholds set to remain in place until 2026, HMRC will continue to see an increase in receipts

Andrew Tully, Canada Life’s CTO, said: ‘HMRC is seeing an incredible increase in IHT revenue delivering £1.8bn to the tax collector already this fiscal year, £300m more than in the same period last year. last year.

“This is a tax that no longer only affects the very wealthy in society and is increasingly affecting families that are not prepared or just don’t know it.”

It adds: ‘The frozen thresholds mean that HMRC has already doubled its IHT tax collection in the last 10 years.

‘This increase will be partly driven by the continued rise in house prices, as residential properties make up the bulk of most properties.

There has also been a higher volume of wealth transfers due to Covid, partly due to more deaths in the elderly population, but also because some people make direct donations to help the family during this difficult period.

“Both the zero rate band and the zero rate residency band are 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 received during the same period in previous years

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

Stephen Lowe, director of group communications for retirement specialist Just Group, said frozen tax thresholds and a booming housing market were the key drivers behind the rise in inheritance tax revenue.

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

‘The OBR forecasts that up to 6.5 per cent of estates could be subject to inheritance tax by 2026, almost double the 3.7 per cent shown by the figures for the last fiscal year.

The OBR also revised inheritance tax forecasts by an average of £400m a year compared to the October 2021 estimates due to rising mortality and rising house prices.

“Residential property is typically the most valuable component of IHT paying properties and yesterday’s House Price Index revealed that the average UK property rose 13 per cent in value over the past year, so many People could be approaching or crossing the threshold without realizing it.

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

“Home values ​​in the South West, for example, rose 17 per cent year-on-year and those in the East of England and the East Midlands rose 15 per cent, adding many tens of thousands to the value of owner-occupied estates.

‘It makes sense for people to keep track of the likely size of their estate and the tax rules that will apply to it.

There are options available to people, such as lifetime mortgages, that can unlock some of the wealth tied up in bricks and mortar.

‘These allow people to pass on wealth while they are still alive and can see the benefits it brings to the recipients; it can also help minimize any inheritance taxes on your estate.

“Professional and regulated advice can provide valuable help for people managing their finances in old age, including determining how your property may affect your estate planning.”

What inheritance tax reduction measures should be a priority?

Action to reduce inheritance tax generally falls into three broad categories, says Ian Dyall of Evelyn Partners. These are to make use of allowances and relief, to reduce the size of your estate, and to reduce liability through the use of life insurance.

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

1) Do you have existing life insurance policies that are not currently in trust, which can be changed to prevent payments from being transferred to your estate?

2) Have you inherited any money in the past two years that would increase the size of your taxable estate, but could be redirected to someone else through a variance deed?

3) If a partner is deceased, are you making use of their £325,000 zero rate tax band in addition to your own?

4) Do you want to make gifts to reduce the size of your estate?

5) Do you want to establish a trust to reduce the size of your estate?

6) Do they want to purchase life coverage, such as a seven-year plan to offset any non-tax-exempt gifts if they die during that period?

7) Do you want to put money into investment vehicles that qualify for commercial property relief?

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