When you lose a loved one, you expect some bills. But few expect a bill from the tax-man when an estate is valued at more than the deceased’s IHT allowance.
But , because of fiscal creep, the cascade of wealth between generations promised us by John Major, has included a torrent of tax paid to HMRC.
UK Inheritance tax receipts reached a record £531 million in February, according to the UK tax authority. The IHT tax take for 2022-23 to-date is £6.4 billion, already surpassing the £6.1 billion received by the Treasury in the previous year.
— Josephine Cumbo (@JosephineCumbo) March 21, 2023
As older people’s wealth increases, the IHT threshold doesn’t. The promise of death taxes being abolished, featuring in many political speeches over the past 25 years, has not materialized.
The record IHT haul for the Treasury is the result of the freezing of the threshold at which IHT is payable on deceased estates. If a person’s estate is worth more than £325000 when they die – tax of 40% is typically payable on the estate.
— Josephine Cumbo (@JosephineCumbo) March 21, 2023
Ironically, the furor over allowing pension pots to transfer to the next generation tax-free is of little help to those who have such pots. All they can hope to use their pots for is to pay the bill on inherited wealth as it arrives.
Of course the £325,000 quoted figure is doubled if their if a spouse has passed on the wealth on an earlier death and there are plenty of ways of reducing the liability using lifetime gifts. The management of IHT has become a strategic “value add” for financial advisers.
Nonetheless, the arrival of a tax-bill with the bequest remains a problem for many families, especially when the bulk of the estate is illiquid (the house).
If you are worried about the financial consequences of you becoming an inheritor , there are more details here.
Step back and think Inflation is up again today. In the budget 2.9% by the year end seems already optimistic. Fiscal drag and inflation is doing what it is designed to do. Living standards look to be set to decline for the foreseeable future.
When you look at the It has almost become a tradition for the Office for Budget Responsibility (OBR) to rework its calculations on the impact of the freezes to the personal allowance and higher rate threshold in its Economic and Fiscal Outlook (EFO).
In the March 2021 EFO, which accompanied Rishi’s Sunak’s original announcement of a freeze on the personal allowance and higher rate threshold through to 2025/26, the OBR estimated that by 2025/26 the net effect would be:
Extra revenue of £8bn a year;
3 million more taxpayers than if the personal allowance had been indexed; and
0 million more higher rate taxpayers than if the higher rate threshold had been indexed.
A year later, inflation prompted the OBR to revise its 2025/26 figures to:
Extra revenue of £ 17.5bn a year;
8 million more taxpayers than if the personal allowance had been indexed; and
0 million more higher rate taxpayers than if the higher rate threshold had been indexed.
In the latest EFO, which emerged last week, the OBR has once again revisited its spreadsheets, this time also taking account of the reduction of the additional rate threshold to £125,140 for 2023/24 and last November’s announcement of a further two years’ freeze. It now reckons that, by 2025/26, there will be:
Extra revenue of £24.2bn a year;
2 million more taxpayers than if the personal allowance had been indexed;
0 million more higher rate taxpayers than if the higher rate threshold had been indexed; and
3 million more additional rate taxpayers than if the £150,000 threshold had remained.
Taking the view out to 2027/28 gives the following:
Extra revenue of £26.4bn a year;
2 million more taxpayers than if the personal allowance had been indexed;
1 million more higher rate taxpayers than if the higher rate threshold had been indexed; and
4 million more additional rate taxpayers than if the £150,000 threshold had remained.
The EFO projections also show that, by 2027/28, 20.4% of taxpayers will be paying more than basic rate against 14.5% in 2021/22 (and 10.4% in 2010/11 when additional rate tax was introduced).