HMRC’s death tax grab is on track to beat last year’s record £7.1billion but Jeremy Hunt is unlikely to scrap the levy, an expert has said. Britons paid an estimated £5.7bn in Inheritance Tax (IHT) between April and December 2023, according to HMRC figures published on Tuesday (January 23).
Analysts warn IHT receipts are on a trajectory to break all previous records, with the April-December 2023 figure £400million higher than the same period last year. The Treasury is on track to take record receipts of some £7.6bn from IHT in the 2023-24 tax year.
Laith Khalaf, Head of Investment Analysis at AJ Bell, told Express.co.uk a Spring Budget cut to IHT would be politically rather than economically motivated.
He said: “While it is widely disliked, few people pay Inheritance Tax, and cutting it has very negligible benefits for economic growth, unlike cutting income tax or National Insurance.
“This close to an election, anything is possible, though it seems more likely the chancellor will opt for tax cuts that can stimulate the economy.”
Chancellor Jeremy Hunt was under pressure to axe IHT ahead of the last Autumn Statement, with the latest figures likely leading to renewed calls to scrap or cut the tax in the forthcoming Budget.
Tom Selby, AJ Bell’s Director of Public Policy, said increasing the thresholds at which IHT is applied or abolishing it altogether could be a popular pre-election giveaway.
Helen Morrissey, Head of Retirement Analysis at broker Hargreaves Lansdown, said a mixture of frozen thresholds and historic house price growth have pulled more people into the net.
She added: “We may well see plans to reform this tax made a feature of March’s Budget.”
Laura Hayward, a tax partner at wealth management firm Evelyn Partners, said as an IHT cut would have little immediate impact on household finances, it is possibly more likely a pledge on the tax will feature in the Conservatives’ General Election manifesto as it would motivate some of the party’s core voters.
Ms Morrissey said increasing thresholds and gifting allowances which haven’t been touched for years could help some families avoid falling into the IHT net and would likely prove more popular than a decision to scrap it completely.
She added: “For the sake of simplification, it also makes sense to do away with the separate nil rate band for property and roll it all into one.”
The analyst continued: “It is important for those who think they may have a liability in the future to take full advantage of the current gifting structures in place to mitigate it where possible.
“Making gifts to family members – for instance using the £3,000 annual exemption, or gifts made out of surplus income – can do much to reduce your potential liability while also helping your family members build their financial resilience.
“However, you must take care to document your gifting carefully so there is a full record of what you have done.”
Ms Hayward said: “It’s invariably a good idea to keep an up-to-date Will to ensure first that one’s assets are distributed as desired, and second that an unnecessary IHT liability is averted.”
She added with the end of the tax year fast approaching, some savers will want to use their annual gifting allowances as this will help reduce the size of an estate and perhaps even take it below the nil rate band.
The tax expert said some savers might look to use up their annual pension allowance with extra contributions, with defined contribution pension pots being very IHT-efficient.
The Chancellor will present the Spring Budget to Parliament on March 15.
