IHT goes 'mainstream' as latest HMRC receipts hit record high

Inheritance tax (IHT) receipts for April 2022 to March 2023 were up £1bn on the previous tax year to £7.1bn, according to latest numbers from HM Revenue & Customs (HMRC).

Estimates released at the last Budget suggested that over the next five years IHT would bring in £38bn.This projection means yearly receipts could exceed £8bn by 2027/28 and 6.7% of deaths would trigger an IHT charge, according to the Office for Budget Responsibility.

The latest figures showed income from IHT was up £1bn year-on-year.

Canada Life technical director Andrew Tully said: "IHT is no longer a tax only on the wealthiest estates. As these record figures show, IHT has now become a mainstream tax on ordinary people, largely due to house price increases."

He added that people needed to put their finances in order to avoid the "tax man taking more than his fair share".

"Only then can people be confident they are passing on their wealth to their beneficiaries as tax efficiently as possible.

"Simple things such as setting up a trust, making use of gift allowances, and using your pension to cascade wealth very tax efficiently, can all help manage the value of your estate for IHT purposes."

Tully explained that the tax-free allowance is £325,000, so if a client suspected their estate might be worth more than this, it is worthwhile seeking expert financial advice.

Just Group group communications director Stephen Lowe said: "IHT receipts stormed to record highs this financial year as the chancellor continues to benefit from frozen thresholds and soaring property prices through the pandemic.

"There seems to be no limit to the Treasury's appetite for IHT and given receipts for this financial year have already surpassed upgraded estimates, it looks set to be the goose that lays golden eggs for some time yet.

"It's important that people regularly assess the value of their estates, including an up-to-date valuation of any owned property. Professional, regulated advice can also help people work out the total value of their estate, calculate how much tax they may be likely to owe and understand what options they have to manage that tax bill." 

Evelyn Partners tax partner Laura Hayward commented: "The latest year-on-year rise in IHT receipts provides a reminder of how this lucrative form of revenue has become well-established as a gift that keeps on giving for the Treasury.

"Although there has been speculation that IHT could be cut by the government as a general election manifesto pledge, the outlook for this tax is far from certain. In the short-term, families would be prudent to give careful thought to their tax planning to ensure they don't pay more tax than they need to."

She added: "I'm currently seeing a lot of interest from clients wanting to pass wealth to the next generation in a bid to mitigate the impact of IHT. One option is gifting. Gifts you make to other individuals are generally not subject to IHT unless you die within seven years. There is also an annual gift allowance of up to £3,000 per tax year, and this will not be subject to IHT even if you do die within seven years.

"However, many people I speak with also have concerns around control and protection when passing on wealth to the next generation, so I am increasingly seeing them consider tools such as Family Investment Companies, Offshore Bonds and Trusts, where this fits with the wider plans and motivations of the family. IHT needs to be carefully thought through and planned, especially where assets such as company shares, property and pensions are involved."