UK inheritance tax receipts rose £83 million to £2.1 billion between April and June as more people were pulled into paying the tax due to a freeze on thresholds and an increase in asset prices.
The disconnect between property prices and the IHT threshold freeze has resulted in more people paying IHT tax, and the numbers are expected to grow in the future.
“With the baby boomer generation now hitting their sixties and seventies, some of that generation’s accumulated wealth is being passed on to children and grandchildren, and getting taxed on the way,” said Laura Hayward, Tax Partner at professional services and wealth management firm Evelyn Partner.
“The ‘great wealth transfer’ is also underway because many of the older, weather generations are making lifetime gifts to their families. As the wave of inheritance is set to grow over the next 30 years to a transfer of £5.5 trillion, the temptation for successive Governments will be to tap into it to plug gaps in the public finances.
“One think-tank economist has already urged the new Chancellor to consider bringing defined benefit pension pots into the remit of IHT, ahead of Rachel Reeves’ first big fiscal statement, expected in October. The first Budget from a Labour Chancellor in 14 and a half years will be closely watched for any review into IHT reliefs, or suggestion that pension pots could be deemed part of a deceased’s estate.”
In addition to pensions, investors will be concerned that schemes such as SEIS and EIS that provide incentives for investors to invest in early-stage companies could be changed.
Any amendments to business relief must be considered carefully because while it may generate additional IHT receipts in the short term, longer term it may curtail investment into innovative UK companies that go on to generate significantly more tax revenues as they grow.
However, Labour need to find money from somewhere to deliver on at least some of their manifesto pledges.
“That puts agricultural and business relief in the firing line,” said Nicholas Hyett, Investment Manager at Wealth Club.
“But, reforms need to be handled sensitively. Abolishing either completely would be devastating to family owned businesses and farms across the country, while reliefs for the AIM market, Enterprise Investment Scheme and Seed Enterprise Investment Scheme provide vital funding for Britian’s smaller companies. The optimum tax system should focus on the behaviours it encourages as well as the revenues it generates.”