The government raked in £4.3bn from inheritance tax in the six months to September, a nine per cent rise on the same period last year, as Rachel Reeves lines up reforms to the unpopular tax in her Budget next week.
According to figures released by HMRC on Tuesday, the Exchequer received £736m from inheritance tax in September and £749m in July, two of the three highest months on record.
And in the three months to September, the Treasury received a record £2.2bn through the levy.
Currently, inheritance tax affects just four per cent of UK estates, but the Resolution Foundation predicts the number will rise to over six per cent by the 2028/29 fiscal year.
An increasing number of estates have been dragged into the tax net as due to the freezing of the £325,000 nil rate band.
Rachel Reeves prepares inheritance tax reforms
The record gains outlined in Tuesday’s data come as Rachel Reeves is said to be weighing up a string of reforms to the unpopular levy, which is charged at a rate of 40 per cent on estates worth over £325,000. It regularly polls as the least popular tax among voters.
According to reports, the chancellor is considering extending the current seven-year rule—which allows gifts to be passed on free from inheritance tax as long as they are made seven years before the benefactor dies—to ten years.
Other changes the government is mulling include removing or reforming reliefs—including business relief on shares in private businesses and those listed on the AIM junior market and agricultural relief on farm land—to tighten up perceived avoidance.
A recent study from the Centre for the Analysis of Taxation (CenTax) found that a quarter of estates worth over £10m paid an average rate of inheritance tax of nine per cent, while a sixth pay under four per cent.
Commenting on HMRC’s numbers, Alastair Black, head of savings policy at asset management giant Abrdn, said: “As asset values continue to rise and thresholds remain frozen, more and more people are being caught in the Inheritance Tax net.
“Families will be closely watching the upcoming Autumn Budget for any changes to IHT with rumours rife that the Chancellor will look to raise tax on Inheritances to help fill the now-reported £40bn target.”
And Nicholas Hyett, investment manager at Wealth Club, said: “Inheritance tax is an absolute cash cow for His Majesty’s Revenue and Customs, which is why it remains in the spotlight ahead of next week’s Autumn Budget. No one knows what changes will be announced, but most agree there will be some attempt to milk more revenue from estates.
“All government’s need to balance short and long term priorities. Throwing the kitchen sink at IHT may be good politics in the short term, but it risks doing long run damage.”