Current Trends in Inheritance Tax Receipts
Inheritance Tax receipts for the period of April to July 2024 have surged to £2.8 billion, marking a £0.2 billion increase compared to the same timeframe last year. This upward trajectory in annual inheritance tax payments has become a common occurrence, driven by the continuous rise in property and financial market assets’ values. Additionally, the freeze on IHT allowances has contributed to more estates surpassing the nil-rate bands, resulting in a greater portion of assets within these estates becoming taxable.
The HM Revenue and Customs data reveal a consistent upward trend in IHT receipts, with no signs of slowing down. It is evident that the Treasury sees this as a reliable source of revenue, with little motivation for the Chancellor to intervene and halt the escalating figures. In fact, there is a growing temptation to leverage this trend to address gaps in the public finances.
Senior figures within the Labour party have expressed concerns about the perceived generosity of certain reliefs, particularly business and agriculture property relief. Think tanks are advocating for defined benefit pension pots to be included in the realm of IHT, signaling a potential shift in the tax landscape. As the new Government gears up to crack down on relief abuse, a comprehensive review of these reliefs seems imminent.
Implications of the ‘Great Wealth Transfer’
The phenomenon known as the ‘great wealth transfer’ is gaining momentum as the baby boomer generation reaches their sixties and seventies. This demographic shift is resulting in a substantial transfer of accumulated wealth to the younger generations, ultimately subjecting these assets to inheritance tax. With the transfer expected to reach a staggering £5.5 trillion over the next three decades, successive Governments are eyeing this wealth as a means to bolster public finances.
The Office for Budget Responsibility’s projections indicate a significant rise in the percentage of deaths leading to the payment of inheritance tax, reaching 6.3% by 2028-29 – the highest level since the 1970s. This marks a notable increase from the mere 2.7% recorded in 2009-10, highlighting the evolving landscape of inheritance taxation. The revenue generated from inheritance tax and its predecessors has consistently grown in real terms, from approximately £2 billion in 1980-81 to a substantial £7.5 billion in 2023-24. Projections suggest that this figure will soar to nearly £9 billion by 2028-29, underscoring the enduring significance of inheritance tax as a revenue stream.
Government’s Strategy and Future Outlook
The Government’s stance on inheritance tax and its associated reliefs is poised to undergo significant scrutiny in the coming years. With mounting pressure to address perceived loopholes and excesses in the current system, a comprehensive review of reliefs and exemptions appears inevitable. The upcoming fiscal statement by Rachel Reeves on October 30 is anticipated to shed light on the Government’s stance on IHT reliefs and the potential inclusion of pension pots within the taxable estate.
As the ‘great wealth transfer’ unfolds and the intergenerational transfer of assets accelerates, inheritance tax is poised to become a pivotal revenue source for the Treasury. The allure of tapping into this vast pool of wealth to offset fiscal deficits is undeniable, making inheritance tax a critical component of the Government’s fiscal strategy. With the OBR’s projections painting a compelling picture of the tax’s revenue potential, it is evident that inheritance tax will play a central role in shaping the country’s fiscal landscape in the years to come.
In conclusion, the surge in Inheritance Tax receipts in the recent period underscores the tax’s enduring relevance as a revenue source for the Government. The evolving demographic shifts and wealth transfers are reshaping the inheritance tax landscape, prompting policymakers to reevaluate the existing system and explore new avenues for revenue generation. As the Government navigates the complexities of inheritance tax policy, the implications of these decisions will reverberate across generations, shaping the future of taxation in the UK.