The government is on track to collect a record £7.9bn in inheritance taxes this year, as higher house prices and frozen IHT limits drag more families into this net.
Government figures for April to June this year show that IHT tax revenue stood at £2bn — £0.2bn higher than the same period last year. The government collected £795m in death taxes in June, the highest figure recorded for a single month.
Currently, only one in 25 estates pay this tax. However the main nil-rate band of £325,000 has been frozen since 2010. A further allowance of £175,000 was introduced in 2017, which can be applied against the family home, which essentially allows £500,000 to be passed on tax-free to children or grandchildren, or £1m for a married couple. However since being introduced this additional allowance has also not been uprated, despite the fact that house prices have risen substantially since then.
The figures come as there have been calls among some Conservative politicians to make abolishing IHT a future election pledge.
AJ Bell head of personal finance Laura Super says: “The amount the nation paid in inheritance tax last month is the highest on record, with the government getting £795 million in death taxes in June. The combination of rising house prices, rising investment markets and frozen tax-free bands mean that more and more estates are paying inheritance tax.
“While the government acknowledges that a few very large estates have skewed the payments for both this June and last June, receipts are still almost £1 billion more in the past twelve months when compared to the previous twelve months.
“In the first three months of this tax year the amount the nation has paid in inheritance tax is 11 per cent higher than the same three months last year. If this trend continues the total IHT bill for this tax year will top £7.9 billion – far ahead of OBR expectations of £7.2 billion.”
She points out that successive governments have chosen to freeze the nil rate band, dragging more people into the death tax net. Analysis by AJ Bell estimates that a couple would pay no IHT on assets up to £1.43 million by 2028 if the nil-rate band, and residence nil-rate had been uprated by successive Tory chancellors going back to George Osborne.
AJ Bell also points out that higher interest rates on late payments have resulted in more people settling these bills quickly.
The government charges a penalty of 2.5 percentage points above the base rate for any late payment of tax bills. Since the bank rate has increased, taxpayers now face a 7.5 per cent interest rate on any late payments.
She says: “Considering some estates have hefty tax bills, this penalty can really add up. Based on a previous FOI by AJ Bell, we know that more than 1.4 million taxpayers were charged interest by HMRC for late payment of tax in the 2020-21 tax year.
“As the tax system has become more complicated, we’ve seen more people miss tax payments and incur fees. But now the interest charge has shot up from 3 per cent at the start of last year to 7.5 per cent today, people will face bigger penalties for missing the deadline.”
The post Record IHT receipts swell Govt coffers in June appeared first on Corporate Adviser.
