Money Blog: Record inheritance tax collection for Treasury due to hidden tax rise | UK News

Inheritance tax receipts rose by £400 million between April and September compared with the same period last year, new government figures show.

This meant a record £4.3 billion for the Treasury.

One of the main reasons is that while everything else has been rising due to inflation, the threshold at which people start paying inheritance tax has been frozen.

There is speculation that the tax could be raised in next Wednesday’s Budget, but government data shows it is already actually rising every year.

Jonathan Halberda, special financial adviser at Wesleyan Financial Services, said: “As we have seen today with higher IHT receipts, the government could simply leave the current £325,000 threshold unchanged and IHT will continue to generate more cash for frontline customers.” . services.”

How does inheritance tax work now?

There is no tax if the value of your estate is below the £325,000 threshold or you leave your estate to your spouse or civil partner, or to an exempt charity or group.

The tax is currently levied at 40% – but only on that part of the property that lies above the threshold. For example, if someone’s estate was worth £400,000 at death, then £75,000 of that estate would be taxed at 40% (total tax would be £30,000).

Keep in mind that if you are married or in a civil partnership, any benefit you unused may be added to your partner’s benefit upon their death.

This means a couple can transfer up to £1 million without their estate being subject to inheritance tax.

There are several exceptions, including for agricultural land and family businesses, as well as pension pots.

Read about all the details here…

How could this change?

People, such as parents, can gift large sums to someone and, as long as they don’t die within seven years, no inheritance tax will be due.

“If pre-Budget rumors are to be believed, the Chancellor is considering extending the period of time you have to wait for gifted assets to be exempt from IHT from the current seven years, possibly to 10 years,” Mr Halberda said.

Another option would be to raise the tax rate, otherwise the value people have to pay on inheritance could be reduced.

There are several exceptions, including for agricultural land and family businesses, which could potentially be removed.

Charlene Young, pensions and savings expert at AJ Bell, said: “The Chancellor may look at IHT and decide to adjust and reform benefits and the use of trusts, which tend to be tools used by wealthier households. This could potentially be formulated as a tax on the richest while sparing the middle class. Although obviously it depends on your point of view.”

What would the thresholds be like if they weren’t frozen?

Ms Young said: “If the value of both groups had been increased due to inflation rather than frozen in 2020, the couple could be passing on an estate worth around £1.5 million today.”

How many people is this currently affecting?

Ms Young said: “While IHT is widely disliked, it is worth noting that very few households pay the tax. it is common to hand over £1 million before IHT kicks in.

“And for those with larger estates, there are different strategies that allow people to effectively give away money and pass the tax on to the assets.”