Families pay £1.2bn in inheritance tax in eight weeks

The amount of inheritance tax raised in April and May this year climbed by 9.1 per cent year-on-year to £1.2billion, fresh figures from HM Revenue & Customs show.

With this trajectory in mind, IHT receipts now look set to rise to a new record high of around £7.7billion this financial year, above previous forecasts, some experts believe.

In March, the Office for Budget Responsibility said £38billion would be raised from IHT over the next five years, adding that the annual figure would swell to £7.8billion only by 2026/7 and £8.4billion by 2027/8.

Frozen: Jeremy Hunt has frozen the inheritance tax nil-rate rate until 2028

A freeze on exemption levels and, in many cases, higher property prices, is helping lift the number of households falling in scope of IHT. 

While volatility remains in the housing market, new figures from the ONS today also revealed that UK property prices increased by 3.5 per cent to £286,000 in the year to April. Growth has slowed but remains in place. 

In the last financial year, the money flowing into Treasury coffers from IHT reached a record of £7.1billion, amid higher property estate values. 

The nil-rate band, which is the rate at which an estate pays no IHT, has stayed put at £325,000, pulling an ever-growing number of people into its web. 

This nil-rate band has been in place since 2010 and Chancellor Jeremey Hunt has extended a freeze on it until 2028. 

It is, however, possible for people to make use of the ‘residence nil-rate band’ in order to pass on a main residence to their children. Under this rule, the allowance is raised by £175,000, meaning parents or grandparents can pass on £500,000 each to direct descendents before IHT kicks in. 

> Ten tips to legally avoid inheritance tax 

Loathed by many, IHT is often viewed as a broader strategy of ‘fiscal drag’, whereby tax thresholds and allowances do not keep up with inflation or wage growth, resulting in more tax being paid.

‘As things stand the cash cow that is IHT looks set to be very lucrative for the Treasury for many years to come’, Laura Hayward, a tax partner at Evelyn Partners, said.

She added: ‘Families should use this update from HMRC as a reminder to take a close look at their tax planning with a professional adviser to ensure they don’t pay more tax than they need to.’ 

Tax matters: A chart showing all HMRC tax receipts for April and May 2023

Echoing this sentiment, Stephen Lowe, a retirement expert at Just Group, said: ‘Inheritance tax looks to be the gift that keeps on giving for the Chancellor.’ 

Jon Sullivan, an IHT advice policy consultant at Wesleyan, said: ‘More and more families are paying a tax that’s historically only been for the very wealthy. 

‘HMRC’s own figures show that the number of estates paying IHT rose 24 per cent between the 2021-22 and 2022-23 tax years – a staggering amount.’

Earlier this month, however, findings from Demos, a cross-party think tank, claimed that its findings revealed scrapping inheritance tax may not be a vote-winning strategy as three-quarters of people back some form of the levy.

According to the survey carried out for Demos, while 55 per cent of people initially said they thought inheritance should be tax-free in general, the public was more supportive when asked about taxes on specific amounts of inheritance.

Voters were more likely to favour taxing higher inheritance that included a second home, financial assets or unearned wealth rather than savings that had been built up through wages.

Around 75 per cent backed taxes on a specific amount of inheritance, with the median response putting the threshold at £300,000, just below the current inheritance tax threshold of £325,000, and well below the £1million threshold where most estates actually begin paying the tax.

While the Treasury’s coffers from IHT are rising, many households have been left battling with dire delays from the government’s Probate Service. 

Drastic staff cuts particularly at senior levels at the Probate Service are causing worsening delays for bereaved families trying to unlock estates, say legal experts.

The Probate Service shrank by more than a third from 188 to 123 staff over the three years to 2021/22, according to Ministry of Justice figures obtained in a Freedom of Information request by law firm Nockolds.

Earlier this month it was also revealed that HMRC is scrapping its phone line for self-assessment taxpayers until September, in a move it claims will free-up staff to help callers with urgent queries.

Since 12 June, HMRC has been trying to direct self-assessment queries from the helpline to the department’s digital services, including its online guidance, digital assistant and webchat.

It claims it will help allow 350 advisers to take urgent calls on other lines and answer customer queries.

This post first appeared on Dailymail.co.uk