Inheritance Tax Changes Shelved as UK Revenue Set to Soar

The Chancellor has decided against making changes to the inheritance tax in the recent Autumn Statement, despite the anticipated increase in revenue from this tax to nearly £10 billion annually by the end of the decade. Contrary to widespread speculation, the proposed decrease of the current 40% tax rate and the increase in thresholds were not included in the Statement.

Rising Inheritance Tax Receipts

Recent HMRC data from April to October revealed a significant increase in inheritance tax receipts, totaling £4.6 billion, which is £500 million more than the same period last year. Projections by the Office for Budget Responsibility show an expected rise in tax intake from £7.1 billion for the current fiscal year to £9.8 billion by 2028/29, marking a 38% increase.

Public Discontent and Frozen Thresholds

Only 4% of families are subject to inheritance tax based on current statistics. However, the tax is generally unpopular because many feel it's unfair to tax someone's estate after their death, especially when it involves leaving property and assets to the next generation. The number of people affected by the tax is growing due to stagnant thresholds and the ongoing increase in property values.

Government insiders hint that the choice to maintain the status quo on inheritance tax is strategic to avoid criticism of favoring the wealthy, but they are open to revisiting this before the Spring Budget. Looking forward to the next election, there might even be discussions within the Conservative party to abolish inheritance tax completely as part of their campaign platform.

Stance on Inheritance Tax Thresholds

The current threshold for inheritance tax stands at £325,000 for singles and £650,000 for married couples or those in civil partnerships, known as the 'nil rate band'. Additional allowances increase the threshold to £1 million for homeowners passing property to direct descendants, which is the 'residence nil rate band'. However, estates valued over £2 million begin to lose this allowance and those over £2.3 million lose it entirely.

Experts suggest that changes like reducing the tax rate to 20% could save families a total of £15.4 billion over three years. Alternatively, if the threshold was increased to £500,000 for all rather than just homeowners with children, families could potentially save £6 billion by 2027/28. Such modifications would result in lower inheritance tax bills or prevent some from having to pay at all.

Decisions on Inherited Pension Taxation

The government has also decided not to implement stricter tax rules on inherited pensions from individuals who pass away before reaching the age of 75. Under current policy, beneficiaries can receive these pensions tax-free up to the deceased's lifetime allowance limit. This ensures that the inherited pensions remain a non-taxable benefit, avoiding potential complications and additional tax burdens on beneficiaries.

Pension specialists welcome this clarity, as it mitigates concerns about the impact of potential changes to financial planning and inheritance arrangements.

inheritance, tax, revenue