HM Revenue & Customs’ (HMRC) monthly tax bulletin shows that the sums paid in inheritance tax (IHT) have, yet again, reached record highs.
Receipts between April and December 2022 totalled £5.3bn ($6.5bn, €6bn) – around £700m higher than the same period a year prior.
In the 2022-23 financial year, June and November saw payment spikes – over £700m and more than £650m, respectively – due to “a small number of higher-value payments than usual”, the taxman said.
Industry commentators all agree that the freezing of IHT thresholds is starting to bite, as monthly figures seem to be on an unstoppable upward trajectory, with many believing the current financial year is set to become a ‘record-breaking’ one.
Andrew Tully, technical director at Canada Life, said: “The latest IHT receipts suggest we are on a trajectory for a record-breaking year, with the frozen thresholds catching more estates in a wider tax take. Inheritance tax is no longer an issue for the wealthy only, but with effective financial planning much can be done to minimise the impact of IHT on estates, including the use of trusts and gifting.
“Financial advisers will be helping clients navigate the complexities of IHT by discussing estate planning solutions with clients and their wider families. By engaging early, good planning can help to reduce or mitigate IHT so it’s essential anyone who thinks IHT may be an issue should seek expert advice.”
Estates and properties
Stephen Lowe, group communications director at retirement specialist Just Group, believes that property will have the biggest impact on people’s inheritance tax liabilities. The Treasury looks set to collect a record amount of cash from inheritance tax this financial year and forecasts predict nearly £8bn a year will be raised from the levy by 2027/28.
“The combination of the freeze on the nil-rate band and rising property prices continues to funnel more inheritance tax into government coffers, especially in regions where house prices are far higher than the rest of the country.
“Substantially more estates pay inheritance tax in London and the south east and a recent Just Group FOI found that the property accounted for 50% of the wealth in London estates paying IHT compared to 32% for the rest of the UK. Further significant house price rises through the pandemic are likely to have tipped many more estates over the inheritance tax threshold, perhaps without the homeowners even realising.
“It is yet another reminder for people of the importance of regularly assessing the value of their estate which includes getting an up-to-date valuation of any owned property. Professional, regulated advice can also help people work out the total value of their estate, calculate how much tax they may be likely to owe and understand what options they have to manage that tax bill.”
Beware of penalties
Richard Bate, partner and IHT expert at law firm Weightmans, added: “As IHT receipts rise, the taxman is putting inheritance affairs under increased scrutiny. Families need to be incredibly diligent when it comes to assessing and reporting any inheritance tax they might owe to HMRC. Getting it wrong can lead to hefty penalties.
“In our experience, mistakes often arise simply not only because of how complex the assessment and reporting process can be, but because the level of detail and investigation that is required is not properly appreciated.
“For example, people may not realise the need to analyse seven years’ worth of banks statements to identify possible gifts made by the deceased or to obtain a formal market valuation of property, house contents and investments when tax is due, relying instead on approximations and internet searches.
“A revenue investigation is stressful and time consuming and executors can face personal penalties if HMRC can show that an inheritance tax account has been submitted without reasonable diligence.
“It’s essential that families seek the support of a solicitor where they are at all unsure. Getting the right help, early, can prevent potentially big headaches down the line.”