Inheritance tax receipts added an extra £400million to government coffers between April and September, compared with the same period last year, new data shows.
Inheritance tax takings reached £4.3billion in the six months from April to September, new data from HMRC shows, continuing the upward trend in IHT takings that has persisted since 2009.
The last full tax year saw inheritance tax raise £7.5billion, increasing more than £400million from the previous year, which itself saw inheritance tax takings rise by almost £1billion.
Tax raid: Chancellor Rachel Reeves has been pegged to make changes to the inheritance tax rules in the Autumn Budget
Alastair Black, head of savings policy at Abrdn, said: ‘As asset values continue to rise and thresholds remain frozen, more and more people are being caught in the inheritance tax net.
‘Families will be closely watching the upcoming Autumn Budget for any changes to inheritance tax with rumours rife that the Chancellor will look to raise tax on Inheritances to help fill the now reported £40bn target.’
Currently, around one in 20 households are liable to pay the tax, but this could be set to rise in the Budget.
While often considered a tax on the wealthy, ‘this is simply no longer the case,’ David Denton, technical consultant at Quilter Cheviot, said.
Inheritance tax is levied at 40 per cent on estates above a certain size.
You need to be worth £325,000 if you are single, or £650,000 jointly if you are married or in a civil partnership, for your loved ones to have to stump up inheritance tax.
A further allowance, the residence nil rate band, increases the threshold by £175,000 each – so £350,000 for a married couple – for those who leave their home to direct descendants. This creates a potential maximum joint inheritance tax-free total of £1million.
This own home allowance starts being removed once an estate reaches £2million, at a rate of £1 for every £2 above the threshold. It vanishes completely by £2.3million.
David Denton adds: ‘Labour’s first budget is now just over a week away, and rumours around potential changes to inheritance tax have been rife.
‘Inheritance tax is a highly emotive issue, and it has been ripe for reform and simplification for many years given it is full of impenetrable and irrelevant details in need of review.
‘However, reports that the Government could make a quick tax grab by removing the complex but valuable residence nil rate band, or by extending the current seven-year rule to ten years, could face significant backlash.’
According to rumours, Chancellor Rachel Reeves could combine the two thresholds but reduce the overall amount you can leave to your loved ones.
Another possibility is that pensions could be lumped in with the assets that count towards inheritance tax.
Other potential changes could see various tax loopholes closed, with agricultural and business relief potentially facing the chopping block; a move that could see farmers and small business owners suffer and see the AIM hamstrung despite the Government’s pledge to drive UK investment.
‘No one knows what changes will be announced, but most agree there will be some attempt to milk more revenue from estates,’ Nicholas Hyett, investment manager at Wealth Club, said.
‘All governments need to balance short- and long-term priorities. Throwing the kitchen sink at inheritance tax may be good politics in the short term, but it risks doing long term damage.’