Chancellor Rachel Reeves took in a record £2.2 billion in inheritance tax (IHT) receipts in the three months leading up to September, as anticipation grows for potential tax changes in her upcoming first Budget.
According to figures from the Office for National Statistics (ONS), inheritance tax brought in £736 million last month alone, taking the financial year’s total to almost £4.3 billion – an increase of more than 10% compared to the same period last year. year.
Inheritance tax, often referred to as the ‘death tax’, is currently levied at 40% on assets over £325,000 when someone dies. Reports suggest that Reeves is considering a range of changes to the controversial tax, including extending the “seven-year rule” – which allows gifts to pass tax-free after seven years – to 10 years. There is also speculation that it may scrap exemptions for stocks listed on the Alternative Investment Market (AIM), as well as exemptions for companies and farmland.
Potential changes to inheritance tax rules
Farmland exemptions were initially designed to help farmers pass land to the next generation, but critics say they are often exploited by the wealthy to reduce their property tax liabilities. Reeves is reportedly reviewing these exemptions as part of a broader effort to reform IHT and generate additional revenue for the Treasury, which is facing pressure to plug a large financial gap.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “Even if the government makes no changes at all, we will continue to face increasingly higher tax bills, thanks to the income tax freeze, inheritance tax thresholds and capital cuts. Dividend Tax and Dividend Tax Allowances The need for more money to fill the black hole in the government’s finances could lead to any of these taxes being raised.
An increase in the value of assets leads to increased tax revenues
Inheritance tax revenues have risen due to the increase in the value of assets over the past year. The FTSE 100 rose 12.5%, while UK house prices rose by an average of 2.8% in the year to August. These higher asset values, combined with frozen tax thresholds, are pushing more properties into the IHT bracket.
In addition to inheritance tax, the advisor also benefits from other asset-based taxes. Stamp duty land tax, imposed on property purchases, generated £1.2bn in September, up from £1.1bn in the same month last year. Likewise, stamp duty on shares brought in £263m, an increase of £40m on 2023, while capital gains tax, imposed on profits generated from the sale of investments, raised £192m – up 16% year-on-year.
Increased tax burden and future reforms
With the government facing a challenging fiscal environment, Reeves is expected to use the budget to introduce a series of tax reforms aimed at boosting revenues. These could include changes to inheritance tax, capital gains tax, and possibly new measures to address rising public service costs.
While many of the proposed reforms could raise significant sums for the treasury, they are likely to face opposition from affected sectors and individuals, especially if they increase the tax burden on households and businesses.