His Majesty’s Treasury raked in £6.3 billion in inheritance tax receipts in the ten months from April to January 2024 according to data released by HMRC this morning.
This is £400 million more than in the same period just one year earlier, and demonstrates a continued upward trend of increasing inheritance tax bills.
While just 4% of estates are picking up the tab, the proportion of families affected is higher, and the freeze on inheritance tax thresholds combined with decades of increases in property prices is pushing the government’s inheritance tax-take on an upwards trajectory.
Wealth Club’s calculations suggest that for those picking up the ‘death tax-tab’, the average bill could increase to £238,000 this 2023/24 tax year, with over 30,000 families having to hand over part of their inheritance to the taxman.
This is a steep 11.2% increase from the £214,000 average paid just three years ago and a 14.2% rise in the number of estates paying the tax.
Nicholas Hyett, Investment Manager at Wealth Club said, “The government seems to be rowing back on potential tax cuts at the March Budget. And with IHT an ever growing source of revenue, you can see why the Chancellor might find it difficult to cut this most unpopular of taxes. Any shortfall would mean higher tax or lower spending elsewhere.
The good news is that with a little planning, there are a number of perfectly legitimate and easy solutions to reducing your inheritance tax liability. For example, pensions can be passed on relatively tax efficiently, and the nil-rate residential band helps pass on properties to direct descendants.
In fact, the greatest IHT threat probably comes from where you least expect it: your ISA. While tax efficient in so many way, ISAs are not IHT free, so up to 40% of your long-term savings could end up with the taxman.
An alternative is to invest in an AIM ISA, a managed portfolio of AIM shares that can be IHT free after two years. This is thanks to a government scheme to encourage investment in AIM – providing funding to smaller, and therefore riskier, businesses that might otherwise struggle to raise funds. In return you still get the ISA benefits of tax-free income and growth for as long as you live, but you don’t need to worry about IHT on top.
For those who don’t expect to need their savings in the near term, and who are prepared to take a higher degree of risk, investing in early-stage businesses through EIS and SEIS might be worth considering. Not only are they very tax efficient, including being free of IHT after two years, but your money goes to fund entrepreneurial companies, which is great for economic growth and job creation.”
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