The amount of inheritance tax (IHT) brought in by the Government is £600m higher than the year before as more estates were pushed in to paying the “country’s most hated tax”.
Between April and December, IHT receipts reached £6.3bn, an increase of £0.6bn when compared to the same period last year, according to data from HM Revenue & Customs (HMRC).
The latest data found that receipts totalled £620m in December alone, an increase of 13 per cent on the £547m collected in December 2023.
Increasing asset prices, the freezing of tax thresholds – which was extended for another two years in the Budget – and additional changes to IHT rules are all to blame for the rise.
Currently, just 4 per cent of estates are liable for IHT, but estimates from the Office for Budget Responsibility (OBR) suggest that this will increase to 10 per cent by 2030.
IHT is applied at a flat rate of 40 per cent on estates worth over £325,000, but the system includes many loopholes, meaning the effective rate is often much lower.
In last October’s Budget, Rachel Reeves took action to close some of these loopholes.
She also announced that, from April 2027, inherited pension pots will be subjected to IHT and farms will have to pay the tax for the first time.
This is likely to increase the intake of IHT receipts dramatically.
The OBR has estimated that policy changes announced at the Budget will add £2.5bn in IHT receipts by 2029-30.
Commenting on the figures, Tim Snaith, partner at law firm Winckworth Sherwood, said: “IHT revenues continue to steadily rise due to the prolonged freeze on IHT thresholds.
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Read More“The nil-rate band (NRB) and the residence nil-rate band (RNRB) have not been adjusted for inflation or rising property values, which means more estates are becoming liable for the tax as asset values increase.
“It remains a persistent and unavoidable inheritance tax planning issue, and one that should not be ignored.”
Shaun Moore, tax and financial planning expert at Quilter, said the “relentless rise” is no coincidence.
He said: “With IHT thresholds frozen until 2030, more families are being pulled in to the scope of IHT, and this trend shows no signs of slowing.
“Add to that the significant changes coming in April 2027, when pensions will be drawn in to taxable estates, and the Government looks set to cash in on an ever-expanding pool of taxpayers.
“Farming families, too, could face tougher times as reductions to agricultural property relief start to bite, potentially forcing some to make difficult decisions about the future of their farms.
“Meanwhile, tweaks to business relief and AIM share rules are also likely to keep boosting HMRC’s coffers in the years ahead.”
Capital gains tax (CGT) receipts have also increased, thanks to a combination of people selling off assets ahead of the widely anticipated CGT increases before the Budget, as well as the impact of those tax increases.
CGT bills totalled £332m in December, and there has now been a £410m increase in tax take between April and December 2024 compared to the same period the year before, figures have revealed.
PAYE income tax and national insurance contributions (NICs) have also been rising exponentially, resulting in a total tax take of £311.4bn so far this tax year – a £8.6bn increase year on year.
Moore said that changes to employer NICs in the Budget – the rate will increase from 13.8 per cent to 15 per cent in April – is steadily increasing the tax take and will “likely remain a key revenue stream for the Government”.
He added: “Frozen thresholds are doing the heavy lifting for the Treasury, steadily drawing more taxpayers into higher tax bands.
“The Government’s reliance on fiscal drag to swell its coffers is becoming more apparent with each passing month.
“It’s a strategy that avoids the political backlash of raising headline rates but leaves taxpayers paying more, nonetheless. However, thresholds will thaw in April 2028 which will come as a welcome relief.”
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