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Continue readingWith HMRC taking record revenues from Inheritance Tax, where is this newfound money coming from? What does it mean for you? Probate Solicitor Outi Hubbard offers her perspective.
Increased Inheritance Tax Revenues for HMRC
It is looking like it will be another record breaking year for Inheritance Tax (often abbreviated to IHT). HMRC has just released figures for their revenues taken from inheritance tax between April 2023 to January 2024. Surprisingly, they’re on track set a new record, having only just broken one in the previous window.
In total, the Treasury has received £6.3 billion so far this year, eclipsing the previous record in this time period by some £400m. That’s already a 7% swing and bear in mind that this tax year is yet to close. HMRC is on track to set a new record for the total revenue collected through inheritance tax. Projections are showing that they will receive roughly £7.6 billion by the end of this tax year, beating out the previous year’s record £7.1 billion.
We are not several years passed the COVID pandemic, which saw a spike in mortality rates, and so the increased revenues cannot be pinned to death rates. So where is that money coming from?
What is the IHT Nil-Rate Band?
You may expect these rates to coincide with a change in the inheritance tax threshold (that is, the amount above which an estate has to start paying tax), but this is not the case. The IHT nil-rate band sits at £325,000 – the same as it has been for the last 14 years – and so any estate that falls below that amount does not owe any tax to HMRC.
While inflation does mean that this £325,000 figure is not worth as much as it once was, this has not contributed significantly in pushing more people above the IHT nil-rate band.
How Does IHT Work?
As mentioned previously, the IHT nil-rate band is £325,000. Below that you do not pay any inheritance tax. There is an exception to this rule which means that only a small fraction of estates actually end up paying IHT. If you have a spouse or civil partner, anything you leave to them is exempt from inheritance tax entirely.
In addition to this, you can use what is called ‘the residence nil-rate band’ when you pass on your main residence to your children. This raises the threshold by £175,000 up to a £500,000 total. So if you are passing your property on to your children, it will now be exempt from tax up to £500,000. If you want to learn more about this, do get in touch with myself or a member of our probate team.
Underpaying Inheritance Tax – A High Price to Pay
What is perhaps more telling is the other record that HMRC set in 2022: revenues generated following investigations into IHT underpayments.
In March of that year, HMRC brought in £326m from investigating people who were paying less than they owed in inheritance tax. At present, there are thousands of investigations into underpaid IHT ongoing as HMRC looks to really focus on preventing individuals from avoiding paying tax. The penalty for not paying inheritance tax is high: a 7.75% interest rate. They are able to claim that interest rate on money owed from past payments, meaning that the costs of not paying can very quickly escalate.
This is both a deterrent for avoiding paying IHT and massive potential revenue source for the Treasury so HMRC are doubling down on this approach.
Is the Government getting rid of Inheritance Tax?
No more inheritance tax? Ahead of this year’s general election, the current Tory government are looking for creative ways to bring in more voters. One proposal the government is considering behind the scenes, according to the Financial Times, is that they could scrap inheritance tax entirely.
Losing this revenue could spell a significant loss for the Treasury, particularly as record sums are being collected year on year, and so the government would not take this decision lightly. Whether there is a Conservative victory or not, it does look plausible that the IHT bands will see some kind of adjustment over the next few years, as they have been steady for so long now.
Help Understanding Inheritance Tax
Dealing with somebody’s estate after their death can be very complicated indeed. Multiple properties, stocks and shares tied up in companies across the world, international bank accounts, assets in different jurisdictions, non-typical family arrangements, the list could go on forever. Each estate is unique and presents different complexities to understand. Doing all of this alone, particularly in the wake of losing a loved one, can be exhausting and overwhelming.
At Hubbard Pegman and Whitney LLP, we have decades of experience collectively in providing our clients expert and compassionate legal support. Our team of probate solicitors in Hammersmith can help you navigate the difficult waters of inheritance tax and probate in general, with care and understanding. If you would like to get in touch either fill out the contact one of our team, call us on 0208 735 9770 or send us an email at info@hpwsolicitors.co.uk.
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