The latest figures from the UK’s HM Revenue and Customs (HMRC) released today (21 June), show that inheritance tax receipts hit £1.4bn in just the first two months of the 2024/25 tax year. This is £200m higher than the same period in the previous tax year, and continues the upward trend over the last two decades.
In the 2023/24 tax year inheritance tax raised £7.499bn in revenue for HMRC. However, that could increase dramatically should the Labour Party win the election – a pledge to restrict non-doms from shifting money overseas is expected to raise £430m a year, equivalent to a 6% increase in the overall inheritance tax take. Combine that with thresholds that are likely to remain frozen, and the UK’s most hated tax is only likely to grow say some experts.
Inheritance tax has been a feature of several manifestos and campaigns this election:
• Labour’s pledge: to end the use of offshore Trusts to avoid inheritance tax, generating an estimated £430 million in income for the Treasury each year.
• Reform’s pledge: to abolish inheritance tax for all estates under £2m, which would leave just 2% of estates liable for inheritance tax. The rate above £2m would be 20%, with the option to donate to charity instead.
• Conservative’s pledge: to retain inheritance tax reliefs for family farms to ensure they can be passed down without tax burdens.
In early reaction, industry expert Laura Hayward, tax partner at professional services and wealth management firm Evelyn Partners, said “Inheritance tax receipts seem to be booming in this tax year, and after just two months revenues are well on the way to a record total for the 2024/25 tax year. The 16.6 per cent surge suggests that the next Government will be taking significantly more from IHT whatever it intends to do with the tax or the reliefs around it.
“IHT has turned into a spectre at the electoral feast which no one really wants to mention by name, never mind grapple with. Labour named it once in their manifesto, confirming its pledge to end the use of offshore trusts, which is a matter affecting mainly non-doms.
“While the Conservatives promised to retain business-related reliefs, they made no other pledge on IHT, with not one mention of the word ‘inheritance’ in their manifesto – quite a climbdown from the situation less than a year ago when the possible abolition of IHT was being touted for the 2023 Autumn Statement.
“Rishi Sunak’s farmyard offensive this week played on fears that remain among agricultural and other family businesses that Labour could target these reliefs, given previous pronouncements. He claimed Labour had a ‘secret plan’ to increase taxes on farmers because it had not explicitly ruled out abolishing an exemption from IHT for agricultural properties.
“Even if a new Government is shy of making transparent and potentially unpopular decisions to tax the passing on of wealth more harshly, then fiscal drag is doing a similar job behind the scenes anyway. With both property and financial market assets continuing to surge in value, there is no prospect of the trend abating for more estates, and more assets in each liable estate, being dragged over the frozen thresholds at which IHT kicks in.
She further said: “The Office for Budget Responsibility forecasts that the share of deaths resulting in the payment of inheritance tax will rise to 6.3 per cent by 2028–29, the highest level since the 1970s. That proportion was as low as 2.7 per cent in 2009/10. Revenue from inheritance tax and its predecessors has increased over time in real terms, from around £2billion in 1980/81, to £7.5billion in 2023/24, and will reach almost £9billion by 2028/29 (all amounts in 23/24 prices).
“The haul for the Treasury from IHT is likely to escalate in the coming years due to a particular demographic bump. As the wealthy baby boomer generation dies off in the next couple of decades, there will be a massive transfer of wealth. Research shows that the older generations have as much as £2.6trillion of equity tied up in their homes.”
Stephen Lowe, group communications director at retirement specialist Just Group, commented: “Last year set a record for inheritance tax receipts with £7.5 billion collected in total and this year is off to a racing start with over £1.4 billion collected over the first two months.
“The OBR’s forecast paints IHT as an increasingly lucrative source of income for the government with its latest revision expecting receipts to rise to an estimated £9.7 billion by 2028/29, driven by a combination of frozen thresholds and house price growth tipping more estates over the threshold.
“The General Election is less than two weeks away and, despite IHT being a hot topic of debate leading up to the election campaign, there is a distinct lack of policy commitments in some of the key manifestos. The Conservatives shied away from a rumoured pledge to cut IHT but Reform has pledged to abolish inheritance tax for estates worth less than £2 million.
“Meanwhile, Labour and the Liberal Democrats have remained silent on IHT in their respective manifestos. Particular attention will be paid to Labour’s policy position given the odds on them winning an outright majority and the commitment only to avoid tax rises on working people may hint that inheritance tax could still be on their list of revenue raising options if needed.
“On balance, it seems unlikely there will be any change in the very near future but it remains one to watch. For people who think they may be affected by IHT we recommend they regularly review the entire value of their estate, including obtaining an up-to-date valuation of their property. Speaking with a professional, regulated adviser will then help in understanding how to legitimately manage exposure to the tax.”
Nick Henshaw, head of intermediary distribution at Wesleyan, said: “Yet another rise in IHT receipts only makes it more shocking that neither of the two main political parties have mentioned it in their manifestos.
“The simple fact is that IHT is no longer just a tax for the super-wealthy, as it was designed. We urge whoever takes power to revisit it and ensure it is fit for purpose today, as well as streamlining it to make sure that it is as easy as possible for families to engage with.”
Nicholas Hyett, investment manager at Wealth Club said: “Inheritance tax is a hot topic this election. Labour are targeting non-doms who shelter their money abroad and the Conservatives have accused Labour of harbouring secret plans to go further – with inheritance tax notably absent from the list of taxes in the Labour manifesto that will not be increased. Meanwhile Reform have promised generous inheritance tax cuts as it looks to win over voters.
“The reality is that inheritance tax would likely rise under either of the two main parties. Freezes on thresholds over the last few years, partnered with decades of house price rises have brought more and more estates into the tax band. Attempts to increase taxes on wealthy non-doms may be politically popular, but most of the tab will still be picked up by families who would not consider themselves particularly rich. For these families, their standard of living hasn’t changed, indeed inflation means it might have gone backwards, but frozen allowances mean the government now considers them wealthy enough to face inheritance tax.
“As things stand there are some useful ways to mitigate inheritance tax – whether that’s making gifts in your lifetime, passing pensions on tax free, investing in certain qualifying AIM shares or making EIS/SEIS qualifying investments. However, political uncertainty is right now – and with inheritance tax a bit of a political football it’s difficult for investors to make informed decisions.
As ever, uncertainty is the enemy of investment ultimately undermining economic growth.”
Alastair Black, head of savings Policy at abrdn, said: “A frozen IHT nil rate band, combined with rising asset values, continues to draw more people into the IHT net.
“Comment on plans for IHT have been conspicuously absent from manifestos. What was originally a tax targeted at the super rich has become mainstream. Much like the other taxes, consumers need a degree of certainty and this needs to be addressed. And, while we’re at it, it’s imperative we look at simplifying the regime too.
“We’re in the midst of the Great Wealth Transfer, where as much as £5.5 trillion in assets are set to be passed between generations between now and 2050. A regime which encourages and facilitates this surely has to be good for UK growth.
“In the meantime, it remains critical that people are taking the time to consider how they want to pass on their wealth in the most effective and efficient manner – and advisers have a real opportunity to once again show their value here. This might include gifting, or funding a pension.”
