Inheritance tax receipts rise by £400m in six months as more people get ‘caught up in the net’

Inheritance tax receipts added an extra £400 million to the government’s coffers between April and September compared with the same period last year, new data shows.

Inheritance tax receipts reached £4.3 billion in the six months from April to September, new data from HMRC shows, continuing the upward trend in IHT receipts that has persisted since 2009.

The last full financial year saw inheritance tax increase by £7.5 billion, increasing by more than £400 million on the previous year, which saw inheritance tax collections increase by almost £1 billion.

Tax attack: Chancellor Rachel Reeves told to make changes to inheritance tax rules in autumn budget

Alastair Black, head of savings policy at Abrdn, said: “As asset values ​​continue to rise and limits remain frozen, more and more people are getting caught in the inheritance tax net.

‘Families will be watching the upcoming Autumn Budget closely for any changes to inheritance tax, with rumors rife that the Chancellor will look to increase inheritance tax to help meet the now reported £40bn target.’

Currently, around one in every 20 households is responsible for paying tax, but this amount could increase in the Budget.

Although often considered a tax on the wealthy, “this is simply no longer the case,” said David Denton, technical consultant at Quilter Cheviot.

Inheritance tax is charged at 40% on estates above a certain size.

You need to be worth £325,000 if you’re single, or £650,000 jointly if you’re married or in a civil partnership, so your loved ones will have to shoulder inheritance tax.

An additional allowance, the Nil Residency Rate Band, increases the limit by £175,000 each – i.e. £350,000 for a couple – for those leaving their home to direct descendants. This creates a total maximum tax-free joint inheritance potential of £1 million.

This homeownership allowance starts to be removed when an estate reaches £2 million, at a rate of £1 for every £2 over the limit. It disappears completely for £2.3m.

David Denton adds: “Labour’s first budget is now just over a week away and rumors about potential changes to inheritance tax have been rife.

“Inheritance tax is a highly emotive issue and has been ripe for reform and simplification for many years, as it is full of impenetrable and irrelevant details that need review.

‘However, reports that the government could make a quick tax capture, removing the complex but valuable nil residency tax band, or extending the current seven-year rule to ten years, could face a significant backlash.’

According to rumors, Chancellor Rachel Reeves could combine the two limits but reduce the total amount you can leave to your loved ones.

Another possibility is that pensions could be grouped with assets that count towards inheritance tax.

Other potential changes could see several tax gaps closed, with agricultural and business aid potentially stepping up to the plate; a move that could make farmers and small business owners suffer and see AIM paralyzed despite the government’s promise to boost investment in the UK.

“No one knows what changes will be announced, but most agree there will be some attempt to extract more income from properties,” said Nicholas Hyett, investment manager at Wealth Club.

“All governments need to balance short- and long-term priorities. Throwing the kitchen sink at inheritance tax may be good policy in the short term, but it risks causing long-term damage.