Chancellor Rachel Reeves has secured a file £2.2 billion in inheritance tax (IHT) receipts within the three months main as much as September, as anticipation builds for potential tax adjustments in her upcoming maiden Finances.
Based on figures from the Workplace for Nationwide Statistics (ONS), inheritance tax introduced in £736 million final month alone, elevating the full for the monetary yr to just about £4.3 billion—a rise of greater than 10% in contrast with the identical interval final yr.
Inheritance tax, also known as the “death tax,” is at the moment charged at 40% on belongings above £325,000 when somebody dies. Reviews counsel that Reeves is contemplating a variety of adjustments to the controversial tax, together with extending the “seven-year rule”—which permits items to be handed on tax-free after seven years—to 10 years. There’s additionally hypothesis that she could take away reliefs on shares listed on the Various Funding Market (AIM), in addition to exemptions for companies and agricultural land.
Potential adjustments to inheritance tax guidelines
The exemptions for agricultural land have been initially designed to assist farmers move down land to the following technology, however critics argue that they’re typically exploited by the rich to scale back their property’s tax legal responsibility. Reeves is reportedly reviewing these reliefs as a part of a wider effort to reform IHT and generate further income for the Treasury, which is dealing with strain to shut a big fiscal hole.
Sarah Coles, head of private finance at Hargreaves Lansdown, famous: “Even if the Government makes no changes at all, we’ll continue to face ever-higher tax bills, thanks to frozen income tax and inheritance tax thresholds and the slashing of capital gains tax and dividend tax allowances. The need for more cash to fill the black hole in the Government’s finances could push up any of these taxes.”
Rising asset values drive greater tax revenues
Inheritance tax receipts have surged as a result of growing worth of belongings over the previous yr. The FTSE 100 has risen by 12.5%, whereas UK home costs elevated by a median of two.8% within the yr to August. These rising asset values, mixed with frozen tax thresholds, are pushing extra estates into the IHT bracket.
Past inheritance tax, the Chancellor can also be benefiting from different asset-based taxes. Stamp responsibility land tax, levied on property purchases, generated £1.2 billion in September, up from £1.1 billion in the identical month final yr. Equally, stamp responsibility on shares introduced in £263 million, a £40 million enhance from 2023, whereas capital good points tax, charged on earnings from the sale of investments, raised £192 million—up 16% year-on-year.
Rising tax burden and future reforms
With the federal government dealing with a difficult fiscal setting, Reeves is anticipated to make use of the Finances to introduce a collection of tax reforms aimed toward boosting revenues. These might embrace adjustments to inheritance tax, capital good points tax, and presumably new measures to deal with the rising value of public companies.
Whereas lots of the proposed reforms might elevate important sums for the Exchequer, they’re more likely to face opposition from affected sectors and people, particularly in the event that they enhance the tax burden on households and companies.
