The latest figures from HM Revenue and Customs (HMRC) show that inheritance tax receipts increased to £3.9 billion in the six months from April 2023 to September 2023. This is a £400 million increase from the same period in the previous year, and continues the upwards trend over the last decade.
For those that are picking up the ‘death tax-tab’, Wealth Club calculations suggest the average bill could increase to £233,000 this 2023/24 tax year, with over 30,000 families having to hand over part of their inheritance to the tax man.
This is a steep 9% increase from the £214,000 average paid just three years ago and a 12% rise in the number of estates paying the tax. This increase is being fuelled by years of soaring house prices and frozen allowances.
Nicholas Hyett, Investment Manager at Wealth Club said:
“Inheritance tax has found itself the unexpected centre of the UK’s political battlefield.
The tax pulled in over £7bn for HMRC last year and the most recent set of numbers suggests that’s set to climb again. Both the average bill and the number of families paying inheritance tax are also set to rise in the years ahead according to Wealth Club research.
Depending on your political position that is either a good or a bad thing. But, whether you think inheritance tax is a great means of wealth redistribution or an unfair tax on those who’ve already been taxed once – the future of the UK’s most controversial tax is worth arguing about.
And people are. The government is rumoured to be considering abolishing inheritance tax altogether, while the Labour party is looking at scrapping inheritance tax relief known as Business Relief for businesses passed on to family members. It’s a genuine point of difference in a political landscape that is otherwise pretty bland.
Neither approach strikes us as easy to implement, or really that likely.
Scrapping inheritance tax will cost the government revenues at a time when it needs all the cash it can get. And while scrapping Business Relief might pull in a little bit extra, inheritance tax’s unpopularity, even among those who don’t pay it, and the damage it could do to the UK’s small business sector and Alternative Investment Market mean it’s probably not a goer.
Still the current inheritance tax system does need fixing. Inflation, rising house prices and frozen allowances are pushing more families within the reach of inheritance tax every year. Given they’re no wealthier than they were before, and possibly worse off given the cost of living crisis, it’s no wonder inheritance tax is the most unpopular tax in Britain.”
Those concerned about inheritance tax should consider;
Giving money away early. Gifts taken out of regular income, which are not deemed to affect the giver’s standard of living, are inheritance tax free on day one – as are certain smaller gifts. Timing is key as you can give unlimited amounts away but typically these take seven years to be completely inheritance tax free. Of course, once you give away the money you’ve lost control. If you need it back for an emergency, that’s not an option.
Investing in companies that qualify for Business Relief. These are typically inheritance tax free after two years. Investing in unquoted businesses can be risky, however, unlike giving the money away, you retain control.
Investing in an AIM ISA. ISAs are not inheritance tax free. When you pass away, your loved ones could miss out on 40% of your hard-earned cash. AIM ISAs are a popular way around this. They are riskier but after two years they could be IHT free.”
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For further information contact:
Jo Thorne: 07939882816, [email protected]
