21/10/21

UK: Rise in IHT receipts as chancellor looks for spending power.

As published on ftadviser.com, Thursday 21 October, 2021.

Inheritance tax receipts for the period April to September were up £0.7bn year-on-year, most likely due to higher volumes of wealth transfers during the pandemic, according to HM Revenue & Customs.

IHT collected in the half-year period was £3.1bn, compared with £2.4bn for the same period in 2020.

In a statement today (October 21), HMRC said higher receipts in October and November last year, as well as between March and August this year were expected due to increased volumes of wealth transfers that took place during Covid. Though it could not verify this at this stage.

Julia Rosenbloom, tax partner at Smith & Williamson, said ahead of the Budget next week the chancellor would be looking closely at all areas that might give him additional spending power.

“Prime minister Boris Johnson’s recent announcement introducing a new health and social care levy, which broke a manifesto commitment, demonstrates that the government is not afraid of tax rises.

“Whether any reforms to taxes are announced next week or at a later date, the outlook as to how individuals and businesses will be taxed in the coming years is far from certain," she said.

Heather Owen, financial planning expert at Quilter, said some are hoping for changes to inheritance tax to be announced in the Budget but any major reform remained unlikely.

She said: “Families hit earlier in the year by the nil rate band and residence nil rate band freeze at existing levels until April 2026, at £325,000 and £175,000 respectively, will likely be hoping for reform.

"Despite the fact that this morning’s public sector borrowing figures give the Chancellor a little more wiggle room, reform remains unlikely.

"While inheritance tax raises relatively little in comparison to the chancellor’s growing list of spending projects, a change of this magnitude is highly unlikely as the Treasury needs every penny it can get right now."

Rosenbloom added the ongoing uncertainty around IHT, following several reports from the Office of Tax Simplification as well as an All-Party Parliamentary Group, meant people should start thinking about their tax planning sooner rather than later, to make sure they make the most of current allowances before any changes are introduced.

She said: “Investing tax-efficiently and considering options such as gifting could ensure that more of your assets are passed on to family members or charitable causes.”

In August, HM Revenue and Customs data showed the average inheritance tax bill climbed to more than £200,000 between 2018 and 2019.

Sean McCann, chartered financial planner at NFU Mutual, reiterated that planning was essential.

“It’s critical that families concerned about being caught by IHT seek advice as early as possible. The earlier you plan the more options you have to mitigate any potential bill", he said.