Huge rise in property tax for HMRC ahead of possible Budget change

Figures released by HMRC show that the Treasury raked in £5.7 billion in inheritance tax receipts in the nine months from April to December 2023. This is £400m more than in the same period a year earlier, continuing a long-term upward trend.

One in every 25 estates pay inheritance tax, although the proportion of families affected is higher, and the freeze on inheritance tax thresholds paired with decades of house price increases is pushing the government’s inheritance tax-take on an upwards trajectory.

There has been considerable speculation that changes to IHT - or possibly its abolition - may be included in the early March Spring Budget.

For those that are picking up the ‘death tax-tab’, the investment service Wealth Club calculations suggest the average bill could increase to £239,000 this 2023/24 tax year, with over 30,000 families having to hand over part of their inheritance to the taxman. 

This is an 11.5 per cent increase from the £214,000 average paid just three years ago and a 14.4 per cent rise in the number of estates paying the tax. 

Nicholas Hyett, investment manager at Wealth Club says: “The government’s income from death duties is going up. That makes changes to IHT policy a careful balancing act. Cutting rates might win votes, since many see IHT as an unjust grab for money that’s already been taxed once. 

“But the revenue earned is playing an important part in the government’s spending programme, and a shortfall would need to be made up somewhere else.

“Contrary to popular belief, inheritance tax doesn’t just affect the super-rich. Frozen tax brackets mean many who would not consider themselves wealthy will find themselves falling into the IHT bracket in future. Their standard of living hasn’t changed, indeed inflation means it might have gone backwards, but the government now considers them to be wealthy enough to face inheritance tax.

“Even at its current level, IHT affects more families than it appears at first glance. While only four per cent of deaths result in an IHT charge, a lot of that is because there is no IHT due when estates are passed on to a spouse. It’s on the death of the spouse that an IHT bill falls due. That suggests the number of families affected is more like seven or eight per cent.”

Another consultancy - Hargreaves Lansdown - has also commented on this huge IHT rise.

Analyst Helen Morrissey says: “Inheritance tax may only be paid by four per cent of estates but this hasn’t stopped our IHT bill surging to an estimated £5.7 billion for the year so far. It looks increasingly likely that we will see another record-breaking year with IHT set to top last year’s £7.1 billion by tax year end.

“Reported government plans to axe IHT at the last Autumn Statement were widely criticised, but with a mixture of frozen thresholds and historic house price growth pulling more people into the net, we may well see plans to reform this tax made a feature of March’s Budget. 

“Increasing thresholds and gifting allowances that haven’t been touched for years could help some families from falling into the net and would likely prove more popular than a decision to scrap it completely. 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.”