Investment - Articles - Comments as IHT hits £4.4 billion in 6 months

 Nicholas Hyett, Investment Manager at Wealth Club said: “The November budget is rapidly approaching, and is expected to raise billions more in tax revenues. The Chancellor shook the IHT piggy bank pretty hard last year, but that doesn’t mean she won’t come back looking for more. The long term freeze in IHT allowances is driving an inexorable rise in inheritance taxes, but it won’t deliver a quick tax windfall. Tinkering with things like IHT relief on AIM shares or putting further restrictions on business and agricultural relief probably doesn’t move the needle in the short term either. Instead the target for a revenue raising Chancellor is probably gifting rules. Gifts made more than 7 years prior to death are completely free of inheritance tax, while regular gifts made out of surplus income are free from IHT immediately. Shifting the seven-year rule to a ten-year rule is one option. Gifts made up to ten years before death could be taxed as if they were part of the estate – making one-off gifts to children to help with things like buying a new house potentially problematic, especially for those who die young, piling financial pain on top of personal grief. IHT relief on regular gifts out of surplus income is perhaps the most generous relief available at the moment, and is often used by grandparents to help with things like school or university fees. That could make it a source of extra tax. For example, if grandparents were gifting their children £20,000 a year to cover private school fees, as long as this was out of regular income it would currently be free of IHT. However, if that relief were cut then those gifts would fall under the seven year rule and result in £40,000 of additional inheritance tax. While reforms to gifting rules would inevitably be unpopular, the real problem at the moment is the uncertainty overhanging the budget. The government has been pretty clear it plans to raise taxes, but not how it hopes to do so. That risks people taking evasive action to avoid potential changes, and time pressured decisions taken to avoid rumoured tax changes are rarely optimal. The lack of clarity creates a real risk of financial pain further down the road.”

 Stephen Lowe, director at Just Group, said: “Inheritance Tax continues to prove a treasure trove for the Chancellor. Rising asset prices, frozen thresholds and a tightening of the exemption regime are all combining to drive ever-growing receipts. The Treasury now looks set to collect a fifth consecutive record annual haul. With further reforms that were announced at last Autumn’s Budget yet to be implemented, we can expect this trend to continue and grow. Anyone who is uncertain or concerned that their estate may be subject to Inheritance Tax should get an up-to-date valuation of their estate, including a recent assessment of their property wealth. Estate planning is complex and difficult – especially with tinkering to the rules – and many families who wish to manage their estate efficiently will benefit from professional financial advice.”

 Simon Martin, Head of UK Technical Services at Utmost Wealth Solutions: "Inheritance Tax continues to deliver ever increasing sums for the Treasury building on the reforms announced at the Autumn 2024 Budget. Combined with frozen thresholds, it is clear that more estates will tip into paying IHT in the years ahead, building higher Inheritance Tax revenues. As we approach another revenue-raising Budget it looks likely that the Chancellor will continue to simplify and tighten the IHT regime. A change to the seven-year gifting period – either by extending the period or reducing the period but abolishing IHT taper relief – appears to be a likely target, echoing ideas previously floated by the Office for Tax Simplification.”