UK reports record £5bn in IHT as Prudential spots advice ‘boom’

Added 29th July 2016

The British tax office has set a new record by raising nearly £5bn ($6.6bn, €5.9bn) in inheritance tax (IHT), according to the latest figures from HM Revenue and Customs (HMRC).

UK reports record £5bn in IHT as Prudential spots advice ‘boom’

The data for 2015/16, published on Friday, shows that the British government took nearly £4.7bn in IHT - a 22% leap in revenue compared to the £3.8bn the year before.

IHT receipts last reached a peak before the financial crisis in 2007/08, with HMRC posting a bumper haul of £3.82bn – before sinking to a rock-bottom £2.4bn by 2009/10 as property values plummeted during the recession.

The tax office said in April that this year’s jump in revenue is down to an increase in the values of assets left in estates over time as well as the number of deaths between December 2014 and March 2015 being significantly higher than in the same period in previous years.

IHT advice boom

The figures coincide with a study published earlier this week by insurer Prudential, which found a third of UK advisers reported an increase in enquiries about IHT planning, with 52% adding they expect demand for IHT advice to increase over the next 12 months.

The survey questioned 101 UK-based advisers, of which half admitted they had seen an increase in final salary transfer enquiries for inheritance tax reasons.

"In basic terms, more families are paying more in tax.”

Meanwhile, almost two thirds say their clients have changed their retirement plans to exploit more flexible death benefits rules, introduced as part of the pension freedoms in April 2015.

Last year, the government abolished the so-called “death tax” on retirement savings. The reforms to pensions lifted restrictions on people being able to pass on wealth to non-dependents, enabling retirees to nominate adult children alongside dependent spouses.

Increasing house prices

However, Prudential pointed out that although pension freedoms and the removal of the death tax were “major reasons” for the increased interest in inheritance tax advice, increasing house prices was the number one reason.

Les Cameron, tax specialist at Prudential, said the freezing of the IHT nil rate band in recent years had seen inheritance tax planning “fast becoming a major growth area for advisers and their businesses”, with pension freedoms having “clearly further accelerated that growth”.

“The value of IHT receipts is rising and we are seeing an increase in the number of estates that are now liable under this tax. In basic terms, more families are paying more in tax,” he said.

“It is crucial that advisers assess the impact of all pension schemes held by their clients and adopt a holistic approach to their overall retirement, tax and estate planning.

“Not all schemes will have pension freedom friendly death benefits and all are certainly not IHT-free, therefore carrying out this due diligence is crucial,” he said.

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Monira Matin

Senior Reporter

Monira joined International Adviser in March 2016 from Informa Global Markets where she worked as a eurobond reporter for over two years, covering fixed income markets. She has previously held a number of editorial positions covering politics, insurance and technology. Monira has a degree in Journalism and Economics from City University.

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