HMRC reports surge in inheritance tax receipts

Government statistics released just before Christmas reveal HM Revenue and Customs (HMRC) collected £4.8bn in inheritance tax (IHT) between April and November 2022, an increase of £600m compared to the same period in 2021.

Commenting on the figures Andrew Tully, technical director at insurance and financial services firm Canada Life, predicted a record-breaking year for the taxman.

“With thresholds frozen until at least April 2028, more estates will likely be caught in this widening tax net, and this is despite predicted house price falls in 2023,” he said.

Rachael Griffin, head of tax and trusts at wealth management company Quilter, added: “The figures show the government’s decision to extend the freeze on tax thresholds to fill the gap in public finances will likely prove to be a lucrative one. Receipts from income tax and national insurance payments from April to November 2022 reached £251.4bn – an increase of £31.8bn compared to the same period a year earlier.”

She suggested these figures would be “music to the ears” of chancellor Jeremy Hunt, whose decision to freeze inheritance tax thresholds has meant the “nil-rate band” (the amount that can be passed on before IHT is due) remains at £325,000 – where it has been since 2010-11.

The residence nil-rate band, which applies if a home is left to direct descendants, meanwhile stays at £175,000.

This means, for example, an estate worth £500,000 would face a tax bill of £70,000 (40% of £175,000, the difference between £500,000 and £325,000).

Ms Griffin added: “IHT has traditionally been viewed as a tax on wealthier individuals, but the number of people caught in the IHT net has been rising steadily for some time now and this number will only continue to rise as we move further into the freeze.

“IHT is fast becoming a profitable area for the government, largely due to the rapid rise in house prices seen in recent years causing more people to tip over the threshold.”