The latest HMRC figures, released this morning, reveal that inheritance tax (IHT) receipts for the period April to October 2024 have reached £5.0bn an increase of £0.5bn compared to the same period last year.
In reaction, Rachael Griffin, tax and financial planning expert at Quilter said: This consistent upward trend underscores the government’s rationale for freezing the IHT threshold until 2030. However, incorporating pensions into the taxable estate from April 2027 will turbo charge this data.
“Farmers are also likely to start to bolster these figures as Agricultural Property Relief (APR) is made less generous. These changes mean more farmers may face higher IHT liabilities, potentially forcing difficult decisions about the future of family-owned farms.
“Similarly, the tightening of reliefs for AIM shares and Business Relief (BR) will also raise more for government coffers. These various changes are likely to drive greater urgency in estate planning, as taxpayers seek to navigate a landscape where traditional reliefs and exemptions are gradually eroded and new financial plans need to be laid.
“Capital Gains Tax (CGT) receipts saw an uptick in the months leading up to the budget reflecting the impact of pre-budget rumour mill and expected policy changes. In fact, receipts were around £180m more in the period from April to October 2024 compared the same period a year earlier. Some investors and property owners will have moved to offload assets ahead of the widely anticipated CGT increases announced in the recent budget.
Griffin continued: “In addition, PAYE income tax and National Insurance contributions (NICs) for the same period have risen to £244.4 billion reflecting a £5.8 billion increase year-on-year. While the personal tax take from NICs is not expected to rise significantly, the government has made significant changes to employer NICs. The recent budget introduced an increase in the employer NICs rate for employees and a reduction in the earnings threshold at which employers begin to pay NICs. These measures, designed to target businesses rather than individuals, are set to deliver a significant boost to government revenues. Although businesses may be forced to slow wage growth in the face of increased costs.
“These figures underscore the government’s reliance on fiscal drag and incremental policy changes to boost revenues without formally increasing headline tax rates. While Labour has maintained its pledge not to raise taxes on working individuals, the combination of wage inflation and frozen thresholds means that taxpayers are increasingly being caught in higher tax brackets.
“As the government navigates these complex fiscal dynamics, it will be crucial to monitor the long-term impact on taxpayers and the economy. Policies aimed at raising revenue must strike a delicate balance to avoid disproportionately burdening certain groups or stifling economic growth. With tax receipts continuing to climb, the need for clear, transparent communication and strategic financial planning becomes ever more critical.”
Alex Davies, CEO and Ffounder of Wealth Club said: “Inheritance tax was already an absolute cash cow for the government. The extreme changes announced in last month’s Budget which badly affect farmers, business owners, pension policyholders and investors, mean these figures are only going to increase over the coming years.
“We believe all the changes to inheritance tax made in the Budget are extremely short sighted. Firstly, the tax burden is already at its highest in 70 years and growth is very low. More tax is likely to stifle growth further. Secondly these changes have given those affected no time to plan. It’s very much a case of “one day, that’s your money, the next day, it’s not”; a sentiment which is hardly going to encourage people to invest for the future whether that’s in their own business or in a savings vehicle such as a pension.
“That said you can only base your decisions on the facts as they are now and seemingly there are still ways available to reduce the inheritance tax paid by your estate, although many of them do require time and more risk:
Those concerned about inheritance tax should consider:
• Giving money away early. Gifts taken out of regular income, which are not deemed to affect the giver’s standard of living, are inheritance tax free on day one – as are certain smaller gifts. Timing is key as you can give unlimited amounts away but typically these take seven years to be completely inheritance tax free. Of course, once you give away the money you’ve lost control. If you need it back for an emergency, that’s not an option.
• Investing in unlisted companies that qualify for Business Property Relief. These are typically inheritance tax free after two years. Investing in unquoted businesses can be risky, however, unlike giving the money away, you retain control. From 2026 you will have an overall £1 million Business Relief Allowance. Anything in addition will be taxed at 20%.
• Investing in an AIM ISA. ISAs are not inheritance tax free. When you pass away, your loved ones could miss out on 40% of your hard-earned cash. AIM ISAs are a popular, although much riskier way, to reduce this. Currently after two years they could be IHT free. From 2026 the IHT will be halved toa rate of 20%.”
Stephen Lowe, group communications director at retirement specialist Just Group, commented: “Inheritance Tax has provided a steady stream of income for the Treasury and this year is on track to grow to new record levels for a fourth year in a row. These increases start to look modest compared to the forecast inheritance tax takes following the reforms announced in the Budget.
“With the thresholds frozen for another two years, any growth in property prices or other assets will drag more estates over the threshold, as reflected in the number of deaths subject to IHT now forecast to reach nearly 10% by the end of the decade.
“These changes underscore the importance of people staying on top of the value of their estate and keeping an eye on the future. As a starting point, we encourage people to make sure they have an up-to-date valuation of their estate to help them understand if they are likely to incur IHT.
“Estate planning is complex and professional financial advice can be immensely helpful for people who want to manage their estate efficiently and pass on the maximum inheritance to loved ones.”
