HM Revenue & Customs (HMRC) raked in £5.9bn ($7.1bn, €6.6bn) from inheritance tax (IHT) receipts from April to January 2023.
This is £854m more than in the same period a year earlier, continuing the recent upward trend.
IHT receipts for January 2023 totalled £578m, up from £443 million in the same month a year ago.
While the average bill was £216,000 in 2019/20, research conducted by Wealth Club suggests the average inheritance tax bills could reach £270,831 by 2025-26 and £288,611 by 2027-28 if current inflation expectations are met.
In the Autumn Statement in November 2022, it was also announced that the IHT threshold of £325,000 will be frozen until April 2028.
£7bn bill
Stephen Lowe, group communications director at retirement specialist Just Group, said: “The Chancellor has struck a seam of gold with recent inheritance tax receipts as he looks set to receive another record haul this financial year – and with more to come.
“Receipts are likely to race past official predictions for the next few years. The OBR forecast a tax-take of £6.7bn for the current financial year rising to £6.8bn by 2025-2026 but with receipts averaging £588 million a month this year, inheritance tax receipts are on track to exceed £7bn this year.
“The combination of frozen thresholds and property prices that have soared over the years mean that receipts could continue to grow over the coming years. While it’s good news for the Treasury there will be many people for whom an inheritance tax bill will be a nasty shock.”
Rachael Griffin, tax and financial planning expert at Quilter, added: “Inheritance tax is also proving increasingly lucrative for the government, and this too will only grow as the freeze continues.
“Inheritance tax has historically been considered a tax for only the very wealthy, but the current freeze coupled with inflated house prices has seen far more people caught by the net. Even those who may not consider themselves wealthy could now end up paying inheritance tax as their property value has grown so much.”
All eyes on the Budget
Laura Hayward, tax partner at Evelyn Partners, said: “With monthly IHT receipts continuing to show year-on-year increases, families should give careful thought to their tax planning to minimise the chances of landing themselves a hefty tax bill.
“All eyes are now on what, if any, changes to IHT chancellor Jeremy Hunt will announce in his first proper Budget on 15 March. However, even if the IHT regime remains unchanged, many families will still be pushed into its scope given that the nil rate band and residence nil rate band have both been locked into place until at least April 2026. Many have also been brought into its scope by rising houses in recent years.”
Andrew Tully, technical director at Canada Life, added: “There is a considerable amount of planning which can reduce IHT bills. These include setting up a trust, making full use of gift allowances which allow you to pass on money to family while reducing your estate, and making a will and leaving a legacy to charity. Pensions are also normally excluded from your estate for IHT purposes.
“You can potentially pass on your pension in a tax-efficient way so take this into account when deciding which assets you use to provide an income in later life. Expert advice will be able to understand your specific situation and make the most appropriate recommendation for you and your loved ones.”
