Inheritance tax generated record receipts last year as debates continue to swirl around the future of one of the UK’s most unfair taxes.
New figures out today showed that the government raised £7.5bn through inheritance tax in the last financial year, a £400m increase on last year’s record of £7.1bn.
Stacey Love, technical manager, tax, trusts and estate planning at Canada Life, said inheritance tax was “the tax gift that keeps on giving”.
Like many other taxes, the government has frozen the thresholds at which inheritance tax applies, meaning more estates have been pulled into its orbit as asset prices have increased.
Forecasts from the Institute for Fiscal Studies (IFS) suggest that receipts from inheritance tax will rise to over £15bn by 2032-33 thanks to increasing levels of wealth.
Over the past few months there have been repeated reports that the government might abolish the tax or lower the rate.
So far, the rumours have amounted to nothing, but there are growing calls for reform. “While the trend is only on the way up, IHT continues to be a largely a discretionary tax,” Love said, pointing out to the range of exemptions on the levy.
Currently inheritance tax stands at 40 per cent and is paid on estates worth over £325,000, although there are a range of exemptions which mean only five per cent of deaths are taxed and often at a much lower effective rate.
The IFS has argued that the government could raise an extra £4bn by closing loopholes in the inheritance tax system.
Under the current rules, savings kept in defined contribution pension pots can be passed on tax free.
Agricultural land can also be passed on without paying tax while shares in London’s AIM market receive special treatment if held for two years before death.
“Eliminating the special treatment given to some shares, capping reliefs for business and agricultural assets, and bringing pension pots into the scope of the tax would make the system fairer and raise revenues,” David Sturrock, a senior research economist at the IFS, said.