Author : Marry-Anne Bowring
HM Revenue and Customs (HMRC) rakes in a significant portion of its revenue from property taxes in the UK. Property tax is one of the most significant revenue streams for the UK government. Statistics for inheritance tax receipts for the period April 2022 to September 2022 show that HMRC has pocketed a cool £3.5 billion in inheritance tax receipts for that period. Figures for the same period from last year reveal that HMRC raked in £400m more this year than it did in 2021. It’s not surprising because inheritance tax has been on an upward trend for an extended period in the UK.
The UK Inheritance Tax Structure
In the UK, an inheritance tax (IHT) of 40 percent is generally chargeable if assets surpass a certain threshold. The figure is calculated after deducting applicable liabilities, reliefs, and exemptions. If you hold assets worth £325,000 as an individual, you will not come under the taxable group for inheritance tax. The zero-rate band was introduced in April 2009 and will stay that way until 2025-26. Another zero-rate band of £175,000 is offered for those who pass their family homes to direct descendants. If there is any unused threshold, you are allowed to transfer the same to a surviving spouse or civil partner. This means a couple can potentially pass on up to one million pounds based on the existing tax rules before they come under the inheritance tax net.
IHT Brings More Benefits To The Government
With prices of homes increasing steadily across the country, it is evident that the government’s inheritance tax coffer is filling up faster than before. It is also pushing more families into the inheritance tax zone, thus bringing in more benefits to the government. Tax experts think there is little chance of any major changes happening on the IHT front in the near future. The political chaos at Downing Street leaves little home for British citizens of any relief from the ever-increasing inheritance tax.
Why No Early Respite From IHT Is Expected
Even with just one in 25 estates paying inheritance tax currently, the Office for Budget Responsibility estimates that it will net them £6.7 billion. A back-of-the-envelope calculation will show that those who pay inheritance tax may have to pick a tab of around £266,000 for the current tax year. The UK property industry leaders say this increase is primarily powered by years of frozen allowances of the past and the current surging property prices. They fear that increasing inflation will further magnify the impact of freezing allowances.
The inheritance tax laws need an urgent review if the government does not want an increasing number of families facing the burden of higher taxes and duties that they never expected to hit them. The UK government has promised an early review of inheritance tax rules. However, given the state of the country’s economy, it is unlikely that inheritance tax will be at the top of the government’s list of priorities.
Also, the fact that inheritance tax is a vital cash cow for the Treasury, having added a £300 million collected in the last four months, the tax structure is certainly not something that the government wants to disturb at present. However, there is hope that the UK government might consider a few reforms. Scrapping the tax completely is highly unlikely. They might consider cutting the 40 percent rate. Increasing the threshold, which has been frozen since 2010 at £325,000, is another people-friendly option available to the government.
Mary-Anne Bowring FIRPM FRICS FARLA FCABE Founder/Head of Asset Management
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