Inheritance Tax Receipts raise £2.2 billion in three months
Inheritance tax receipts hit £2.2 billion in the first three months of the current tax year, according to data released by HM Revenue and Customs (HMRC) this morning.
This is £100 million higher than the previous tax year, and continues an upward trend over the last two decades.
Nicholas Hyett, Investment Manager at Wealth Club said:
“Inheritance tax continues to be a meal ticket for HMRC. While wealth taxes, IHT’s uglier sibling, will be in the spotlight in the run up to the Autumn Budget it wouldn’t be entirely surprising to see further tinkering with IHT too.
As things stand inheritance tax may only affect a small percentage of estates, but that number is on the increase as an ever greater number of estates become liable for the most hated of taxes. This is a result of years of freezes in thresholds, matched with increasing house prices and rising inflation. Families who wouldn’t consider themselves to be wealthy at all may now face a bill on the passing of a loved one.
The current inheritance tax allowance has been frozen at £325,000 for 16 years, and remains frozen for another 5 years until 2030. The £175,000 residence nil rate band hasn’t changed since 2020. These freezes are a form of stealth tax, which allows the government to increase their take without a backlash from a headline grabbing tax hike, but still contribute to the highest tax burden in 70 years.
The Chancellor has already hinted at U-turn on IHT for non-doms, thanks to the exodus of wealthy individuals over the last few months. But farmers who are lobbying hard for their own cause, have yet to see any relief, and rumours swirl that AIM could be a victim of double dipping as the Chancellor comes back to the UK’s growth stock market looking for tax revenues.
In this environment lifetime gifts are probably more attractive than ever, particularly regular gifts out of leftover income since these are immediately free of inheritance tax. This approach is particularly popular with grandparents, who use it to pay for things like school or university fees. Avoiding double taxation from inheritance tax is a nice added sweetener.
What can investors do to mitigate their inheritance tax bill?
Despite recent reforms there are still ways 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 half the normal rate or 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 AIM shares could be IHT free after two years. From 2026 the IHT will be halved to a rate of 20%.
The government’s raids on historically IHT free investments and assets – like pensions, private company shares and AIM shares – create exactly the kind of uncertainty that puts people off making investments.”
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