Inheritance tax: Bumper tax take as inflation soars ‘leaves a sour taste’ | Personal Finance | Finance
New data published today by HMRC has shown inheritance tax (IHT) receipts for April to July 2022 were £2.4billion – £0.3billion higher than the same period recorded a year earlier. Cash receipts were also higher from income tax, capital gains tax and National Insurance contributions.
In the midst of a cost of living crisis, and soaring inflation, this could put extra strain on Britons’ pockets.
Myron Jobson, Senior Personal Finance Analyst at interactive investor, said: “The bumper tax haul demonstrates that inflation – both wages and house prices – is feeding through into the revenues coffers.
“This may leave a sour taste at a time people can’t afford energy bills.”
Firstly, there is the idea of income tax – which is a levy paid by large numbers of Britons on their earnings.
READ MORE: Bank of England could more than double rates to combat inflation
It was somewhat eased, however, by the decision to increase the National Insurance threshold in July – but only for certain people.
Frozen thresholds are not only impacting income tax, it is worth noting.
Britons are also feeling the full force of a freeze on the thresholds of inheritance tax – which is commonly loathed by Britons.
Andrew Tully, technical director at Canada Life, highlighted the frozen thresholds mean HMRC has already doubled its tax take from IHT over the last 10 years.
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He continued: “This surge will partly be driven by the ongoing increase in house prices, as residential property makes up the largest share of most estates.
“Both the nil rate band and residence nil rate band are frozen until at least April 2026 so we can expect to see IHT receipts continue to rise.
“This is a tax that is no longer just affecting the very wealthy in society and is increasingly catching out families who are unprepared or simply unaware.”
Currently, only one in every 25 estates pay inheritance tax – four percent across the UK.
However, the freeze on thresholds paired with inflation and house price increases could bring more estates into the sights of the taxman.
The matter could be tackled by whoever becomes the next Prime Minister – Liz Truss or Rishi Sunak.
Alex Davies, CEO and Founder of Wealth Club, added: “Inheritance tax reform is a potential vote winner for Rishi Sunak and Liz Truss among Conservative party members, but it’s hard to imagine it will be top of their agenda in any emergency Budget once they step into power.
“Cutting inheritance tax will do nothing to ease the cost of living crisis engulfing the country, and it’s a real cash cow for the Treasury too.
“With rampant inflation, the effect of freezing allowances will only increase in the years ahead unless the new Prime Minister chooses to intervene.”
