Skyrocketing IHT Receipts: The Stats Revealed

Between April and September 2023, the HMRC recorded IHT receipts of an astounding £3.9 billion. This figure towers over the previous year’s same period by a substantial £400 million, marking an 11% escalation. Such a trajectory in the first half alone sends a clear signal: the Treasury is on track for an unprecedented year of IHT revenues, MoneyMarketing reports.

Stephen Lowe, the Group Communications Director at Just Group, highlighted the intensity of this fiscal change. He pointed out the significant climb in the tax collection compared to the past year and its strong potential to outdo the Office for Budget Responsibility’s (OBR) annual projections.

OBR’s Forecasts Likely Falling Short

The OBR’s recent predictions estimated the IHT would generate £7.2 billion in the current financial year. However, these figures seem conservative now, with expectations rising as high as £8.4 billion by 2027/28. According to Lowe, the ongoing threshold freeze until 2028, paired with a 30% leap in property prices over the past six years, is the major propellant pushing more estates into the IHT net.

Public Awareness: A Cause for Concern

Despite the increasing IHT pressure, Just Group’s research unveils a disturbing lack of awareness among retirees. A staggering 59% of over-55s are unaware of the current IHT threshold. Simultaneously, half of the participants confessed to a blurred understanding of the tax’s rules, potentially setting the stage for unforeseen financial shocks.

The growing IHT figures serve as an alarm, Lowe advises, for individuals to meticulously evaluate their estate’s complete value. This includes keeping property valuations current. Engaging professional, regulated financial advice is a critical step for individuals to accurately determine their estate’s worth, potential tax obligations, and strategize accordingly.

Inheritance Tax: A Political Puzzle

The swelling IHT revenues present a peculiar challenge for the government. Rosie Hooper, a chartered financial planner at Quilter, notes the tax’s sensitive nature, capable of dividing voters. Rumours are afoot about Labour contemplating the elimination of Business and Agricultural Property relief, a move potentially fraught with broader economic impacts.

Furthermore, the Chancellor’s decision to extend the IHT threshold freeze until April 2028 hints at a strategy to quietly increase revenue. However, this comes with its own set of issues. Soaring property prices, especially in southern England, have increased the number of households subject to IHT. Despite a slowdown in the housing market growth, significant price drops are yet to be observed, keeping the average UK home value around £291,000 as of August 2023.

Hooper emphasizes that this strategy of fiscal drag isn’t limited to IHT but extends to freezes in income tax thresholds, capital gains tax allowances, and dividend allowances, all aimed at boosting government revenues.

However, the overarching consensus is clear: IHT requires a well-thought-out reform. The onus is on the political parties to undertake this without triggering unintended repercussions. As families across the UK continue to grapple with these potential financial burdens, the need for clarity, fairness, and comprehensive planning in tax policy has never been more critical.