Soaring Inheritance Tax Collections Climb 10% - HMRC Anticipates Another High-Yield Record Year
Spillin' the Tea on Her Majesty's Revenue and Customs' (HMRC) Inheritance Tax Haul
Got your attention, mate? Here's the lowdown on HMRC's expected bumper year for inheritance tax (IHT) hauls.
HMRC cashed in a whopping £6.3 billion in the first nine months of the tax year — that's over 10% more compared to the same period last year. With three more months to go, the government is set to smash its previous record, gathered last year at an impressive £7.5 billion.
Score a Free Mag and Water Bottle by Following Our Website!
Keep your fingers on the pulse of the financial world with our online mag for the latest news, expert analysis, and 60% off after your trial. Sign up now!
So why are IHT receipts on a steep climb? It's all thanks to frozen tax-free allowances (known as the nil-rate bands) and rising asset values, commonly referred to as "fiscal drag."
Homes, being the main asset handed down, have seen a considerable increase in value since the nil-rate bands were last adjusted. With UK house prices up by almost 24% since April 2020 when the residential nil-rate band last increased, more and more families are finding themselves up against IHT.
These thresholds, the regular nil-rate band (£325,000) and the residential nil-rate band (£175,000), will remain frozen until 2030, as announced in the Autumn Budget.
Financial adviser at Wesleyan Financial Services, Jonathan Halberda predicts that this situation will lead to consistently rising IHT receipts each month. Moreover, we can expect a surge in the number of estates caught in the IHT net in April 2027 when the IHT exemption for money left in pensions on death is closed.
Your Path to Decreasing the Inheritance Tax Bill
Thankfully, there are ways to lighten the IHT load:
- If your loved one happens to be your spouse and you anticipate leaving assets to them, tying the knot might be the move.
- Gifting assets to your dear ones during your lifetime can also do the trick. However, keep a close eye on the rules to avoid any tax evasion misunderstandings.
- You can gift up to £3,000 of your assets to loved ones each tax year without that sum becoming liable for IHT. If you didn't use the allowance last year, you can combine it and pass on £6,000.
- Any special occasions like weddings have some unique rules and perks for IHT. Check out our detailed piece on IHT rules and gifting to learn more.
- If you can prove the gift came from "surplus regular income" rather than capital, you can gift as much as you fancy. Just hang onto evidence, and make sure the gift doesn't negatively affect your quality of life.
- Anything above the gift amount is classified as a potentially-exempt transfer. If you die within seven years of making the gift, IHT will be payable on a sliding scale known as taper relief.
- Planning when and how to gift is key — better not to give too much too soon, or you might struggle later on.
- Be cautious about giving away the family home, as transferring the title may not always count as a valid gift if you continue to dwell there. It could leave your family vulnerable in cases of bankruptcies, fallings-out, or divorce.
In short, if you're concerned about inheriting tax, consider gifting some presents early, but don't gift away too much too quickly, and don't give away the family home thoughtlessly, as it could leave your family susceptible to future complications.
As they say, "Better to be safe than sorry" with IHT!
Sources: 1, 2, 3, 5(a), 5(b), 5(c)
Here are two sentences in English language that contain the given words and follow from the text:
- To manage personal-finance effectively, one might want to explore the opportunities for reducing inheritance tax (IHT) receipts, such as making use of frozen tax-free allowances (nil-rate bands) and gifting assets during one's lifetime.
- When considering property matters, it's worth noting that rising house prices in the UK will likely lead to more estates falling under the inheritance tax (IHT) net due to the frozen nil-rate bands and the upcoming closure of the IHT exemption for money left in pensions on death in April 2027.
