Inheritance taxes raised a record £7.1bn in the latest financial year, with the government collecting more than previously forecast as rising house prices swelled estate values.
HM Revenue & Customs published figures on Tuesday showing that IHT takings had swelled by £1bn in the tax year to April 5 compared with 2021-22. It attributed the increase to rising asset values and the government maintaining the nil-rate band — the rate at which an estate pays no tax — at £325,000.
Chancellor Jeremy Hunt has extended a freeze on IHT thresholds until 2028 that has been in place since 2010. The approach is widely seen as a stealth tax as it has automatically raised more revenue as asset values — especially for houses — have increased.
Economists view the policy as part of a broader strategy of “fiscal drag” that saw HMRC boost the total tax take by 9.9 per cent in 2022-23. It has almost doubled since 2009-10.
“IHT has now become a mainstream tax on ordinary people, largely due to house price increases. With record amounts being banked by the chancellor . . . people need to put their finances in order to avoid the taxman taking more than his fair share,” said Andrew Tully, technical director at Canada Life.
Separately, the Office for National Statistics disclosed on Tuesday that estimated public spending for 2022-23 was £17.2bn below earlier forecasts from the Office for Budget Responsibility, the fiscal watchdog, raising the prospect of possible personal tax cuts in the autumn.
Despite inheritance tax making up a small proportion of the total tax take, it remains contentious for some voters. Soaring inflation has seen more people’s estates fall under the IHT threshold.
The Treasury said: “The vast majority of estates do not pay inheritance tax — more than 93 per cent of estates are forecast to have zero inheritance tax liability in the coming years.”
But there is little sign that the government will raise thresholds. Prime minister Rishi Sunak, when he was chancellor, extend the freeze to 2025-26. Hunt in last year’s Autumn Statement extended it further.
In last month’s Budget, Hunt revised pension rules to allow wealthier individuals to pay more into their pension pot tax-free with the removal of the lifetime allowance — and opened the way for some people to pass more of these funds on to their heirs without incurring IHT.
But these changes face political opposition from the Labour party, which has committed to axing the reforms if it enters government.
The Institute for Fiscal Studies said in February that the current system was overly generous and it backed extending IHT to pension pots, saying this could help finance an overall cut in the basic 40 per cent IHT rate.
“The situation where the tax system treats pensions more generously as a vehicle for bequests than it does as a retirement income vehicle needs to be swiftly ended,” said Isaac Delestre, an economist at the IFS. He said delays in decision making would make it more painful for government in the future.
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