Revenue rises

Inheritance tax plan may be reviewed as receipts soar

Muir Homes
More people are being drawn into inheritance tax

Inheritance tax receipts continue to shore up the government’s finances and may force it reconsider plans to scrap it, according to a wealth manager.

The Treasury saw income from the tax increase to £3.9 billion in the six months from April 2023 to September 2023, a £400 million increase from the same period in the previous year.

For those that are picking up the so-called ‘death tax-tab’, Wealth Club calculations suggest the average bill could increase to £233,000 this 2023/24 tax year, with more than 30,000 families having to hand over part of their inheritance to the tax man. 

It says this is a steep 9% increase from the £214,000 average paid just three years ago and a 12% rise in the number of estates paying the tax. This increase is being fuelled by years of soaring house prices and frozen allowances.

Nicholas Hyett, investment manager at Wealth Club said the inheritance tax has found itself the unexpected centre of the UK’s political battlefield. 

The tax pulled in over £7bn for HMRC last year and the most recent set of numbers suggests it is set to climb again, he says. Both the average bill and the number of families paying inheritance tax are also set to rise in the years ahead according to Wealth Club research.

“Depending on your political position that is either a good or a bad thing,” said Mr Hyett. “But, whether you think inheritance tax is a great means of wealth redistribution or an unfair tax on those who’ve already been taxed once – the future of the UK’s most controversial tax is worth arguing about.

“And people are. The government is rumoured to be considering abolishing inheritance tax altogether, while the Labour party is looking at scrapping inheritance tax relief known as Business Relief for businesses passed on to family members. It’s a genuine point of difference in a political landscape that is otherwise pretty bland.

He said neither approach appears easy to implement, or that likely

“Scrapping inheritance tax will cost the government revenues at a time when it needs all the cash it can get. And while scrapping Business Relief might pull in a little bit extra, inheritance tax’s unpopularity, even among those who don’t pay it, and the damage it could do to the UK’s small business sector and Alternative Investment Market mean it’s probably not a goer.

“Still, the current inheritance tax system does need fixing. Inflation, rising house prices and frozen allowances are pushing more families within the reach of inheritance tax every year.

“Given they’re no wealthier than they were before, and possibly worse off given the cost of living crisis, it’s no wonder inheritance tax is the most unpopular tax in Britain.”

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