New data released today by HMRC showed inheritance tax (IHT) revenue from April to July 2022 was £2.4bn – £0.3bn more than the same period a year earlier. Cash receipts were also higher thanks to income taxcapital gains tax and national insurance contributions.
In the middle of a Cost of life crisis and soaring inflation, this could put additional pressure on the pockets of Britons.
Myron Jobson, Senior Personal Finance Analyst at Interactive Investor, said: “The windfall tax hike demonstrates that inflation – both wages and house prices – is trickling down to revenue coffers.
“It can leave a bitter taste at a time when people can’t afford energy bills.”
First, there’s the idea of income tax – which is a levy paid by large numbers of Britons on their income.
It was, however, somewhat mitigated by the decision to raise the national insurance threshold in July – but only for some people.
Frozen thresholds don’t just impact income tax, it’s worth noting.
The British are also feeling the brunt of the freezing of inheritance tax thresholds – something the British commonly hated.
Andrew Tully, technical director of Canada Life, pointed out that the frozen thresholds mean that HMRC has already doubled its tax levies on the IHT over the past 10 years.
He continued: “This surge will be partly due to the continued increase in property prices, as residential real estate accounts for the largest share of most areas.
“The zero-rate band and the zero-rate residency band are frozen until at least April 2026, so we can expect to see IHT revenue continue to grow.
“This is a tax that no longer just affects the wealthiest in society and is increasingly catching up with families who are unprepared or simply unaware.”
Currently, only one in 25 estates pays inheritance tax, or 4% in the UK.
However, the freezing of the thresholds coupled with inflation and the rise in real estate prices could bring more estates into the sights of the tax authorities.
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 that. ‘She’ll be at the top of their agenda in any emergency budget once in power.
“Lowering inheritance tax will do nothing to alleviate the cost of living crisis hitting the country, and it is also a real cash cow for the Treasury.
“With inflation soaring, the effect of the benefit freeze will only increase in the years to come, unless the new Prime Minister chooses to intervene.”
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