Inheritance tax (IHT) receipts have reached £7 billion between April and January, marking a £700 million increase compared to the same period last year, according to the latest HMRC data. With property prices rising and tax thresholds frozen since 2009, more families are being drawn into the IHT net, leading to record-breaking collections by the Treasury.
Double-digit growth expected in IHT receipts
The latest figures from HMRC indicate that IHT receipts are on track to surpass last year’s total of £7.6 billion, having already exceeded §6.3 billion recorded in December. The Office for Budget Responsibility (OBR) projects that by the end of the 2023/24 tax year, IHT revenues could reach £8.3 billion, reflecting a sharp increase in annual tax intake.
Helen Clarke, partner at Irwin Mitchell and an expert in estate planning, noted: “This latest increase in the amount of Inheritance Tax (IHT) collected is driven in part by the ‘Great Wealth Transfer’ from the baby boomer generation, estimated at £5.5 trillion. As baby boomers pass on their wealth, the value of estates subject to IHT has soared, fuelled by thresholds which have been frozen since 2009 and rising property values, leading to higher tax bills for many families.”
Tax changes on the horizon
The existing Nil Rate Band of £325,000 remains unchanged, meaning more estates are liable for tax as asset values climb. Clarke warned of further increases in IHT collections next year, stating: “Long-Term Residents (LTRs) will face IHT on their worldwide assets, affecting those who have been UK tax residents for at least 10 of the last 20 years. Additionally, trusts set up by non-UK domiciled individuals will see revised IHT treatment. If the settlor becomes an LTR, the trust’s assets will be subject to the relevant property regime, including ten-year anniversary and exit charges.”
Wealth management firm Evelyn Partners has also observed a growing number of families seeking strategies to mitigate their IHT liability. Ian Dyall, head of estate planning, commented: “The inevitable monthly increase in inheritance tax receipts leaves little doubt that this will be another record tax year for IHT revenues as estates across the UK continue to grow in value and nil-rate bands remain frozen.”
Families turning to estate planning solutions
As public finances remain stretched, experts predict that Chancellor Rachel Reeves may be forced to explore additional tax revenue sources in future budgets. Dyall pointed out: “With the self-imposed limits on how she can do this, IHT remains one of the few ways the Chancellor can wriggle out of the fiscal straitjacket. One possibility is an overhaul of the gifting regime, as this would be a relatively easy way for the Treasury to extract a bit more from IHT without raising the headline rate or cutting the nil-rate bands.”
He added: “Either way, as the trend is most definitely that many estates will face significantly higher IHT bills, with possibly fewer ways to mitigate them, then the option of insuring against the liability is also growing in popularity. Since October, we have already seen many more clients seeking whole-of-life cover aimed at covering a future IHT bill so their beneficiaries will not have to foot it, and we expect to see many more do this in the future.”
With IHT revenues continuing to rise, families are increasingly seeking professional advice to navigate the complexities of estate planning. The coming months may bring further changes to tax rules, making proactive financial planning more essential than ever for those looking to protect their assets.
