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Revenue from inheritance taxes and insurance premium tax are on track to reach record levels this year.
IHT receipts were £85m higher last month than at the same time in 2023, new figures from HM Revenue & Customs (HMRC) reveal.
The key inheritance tax threshold will remain at £325,000 until at least 2028, meaning more households will become eligible as the value of their assets continues to rise.
Tax collection: Inheritance tax receipts by month on an HMRC chart
Data from the Office for National Statistics today showed that the typical house price has risen 1.8 per cent in a year to £283,000.
Separately, insurance premium tax receipts in April hit the highest level ever recorded, at £615m, HMRC data showed.
Brits paid £700m in IHT in April
Households collectively paid £700m in IHT last month; This is £85 million, or 7.2 per cent, more in IHT than a year ago, analysis of HMRC figures shows.
By 2028/29, inheritance tax revenue is expected to exceed £9 billion. For 2023/24, the figure stood at £7.5bn.
HMRC said the increase in IHT receipts last month was due, in part, to the Government’s decisions in March 2021 and autumn 2022 to maintain tax-free thresholds at their 2020 to 2021 levels until 2028.
Laura Hayward, partner at Evelyn Partners, said: “Even if thresholds and rates remain frozen, the IHT net will be much wider, attracting families across the UK with fairly modest levels of wealth in real terms.”
‘The Office for Budget Responsibility forecasts that the proportion of deaths resulting in inheritance tax being paid will rise to 6.3 per cent by 2028-29, the highest level since the 1970s.
‘That proportion was as low as 2.7 per cent in 2009/10.
‘The IHT haul to the Treasury is likely to increase in the coming years due to a particular demographic surge.
“As the wealthy baby boom generation disappears over the next two decades, there will be a massive transfer of wealth.”
Quilter tax and financial planning expert Shaun Moore said: “It would be sensible for either party to reassess the UK IHT landscape and change what is no longer fit for purpose.”
“When the party manifestos are published later this year, we will see how both parties hope to evolve the inheritance tax system that has been paralyzed for too long, leading to these sorts of figures.”
Moore said one of the measures that could help ease the tax burden could be to reduce the inheritance tax rate to 30 percent.
However, he acknowledged that such a tax cut was “unlikely to be much of a vote-winner”, as only a very small, but growing, percentage of the UK public currently pays inheritance tax.
Moore said a fairer and less complicated system would be to increase the nil rate band to £500,000.
Fiscal issues: Treasury coffers, led by Jeremy Hunt, are on the rise
Who pays inheritance tax?
About 4 percent of people leave estates large enough that their beneficiaries are responsible for inheritance tax.
But, in addition to the freezing of the threshold, the housing boom of recent decades means that the number of families affected is expected to increase in the coming years.
Essentially, you must be worth £325,000 if you are single, or £650,000 jointly if you are married or in a civil partnership, for your loved ones to have to pay death tax.
But there is an additional allowance, known as the nil residence rate band, which increases the threshold to a combined £1m if you have a partner, own property and intend to leave money to your direct descendants.
There are legal ways to avoid the dreaded 40 per cent ‘death tax’ if you want to spend the maximum amount possible and are prepared to plan for the future.
To give an example, you can donate £3,000 a year, plus make unlimited small gifts of £250, free of inheritance tax.
IPT revenue amounted to £615m in April, up 12 per cent on April 2023 and representing the highest total revenue on record for this period.
The OBR Office for Budget Responsibility expects IPT revenue to rise to £8.8 billion by 2028/29.
The IPT is a tax on general insurance premiums and, for most policies, is charged at 12 percent. It is relevant if, for example, you drive a car, have a pet or have a roof over your head.
This tax is applied directly to insurers, who normally pass most of the cost on to those who contract the product.
Some types of insurance are exempt from IPT, including, for example, life insurance, commercial aircraft insurance, and boat insurance.
The use of individually paid health insurance is soaring amid long waiting lists in the NHS. The IPT applies to these types of policies and the Treasury coffers are benefiting from it.
Cara Spinks, head of insurance consultancy at OAC, said: “Despite a general cooling in premium inflation, demand for health insurance remains high as current NHS pressures and waiting lists mean Private healthcare is an increasingly attractive option for individuals and employers who want to maintain a healthy and active workforce.
‘Employers are increasingly stepping in to fill the healthcare gap, offering their employees a range of tailored health insurance products, such as PMI and health cash plans, to protect the health and well-being of your personal.
‘However, health conditions appear to become more complex and ultimately more expensive to treat, which is partly due to delays in early diagnosis and preventative treatment.
“This means claims costs rise and put upward pressure on health insurance premiums.”
He added: “Alleviating or eliminating IPT in health insurance products would be a strategic and sensible measure to help employers and employees be productive and successful, reducing illness-related absenteeism and easing the burden on the NHS.”
Earlier this year, the Association of British Insurers (ABI) claimed that two-thirds of Britons knew little or nothing about the tax.
In February, the ABI said the IPT added an extra £67 to the average car insurance premium paid.
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