The latest figures from HM Revenue and Customs (HMRC) highlight that the Government’s decision to extend the freeze on tax thresholds is making a lot of money. According to the latest statistics, an additional £600million has been accumulated thanks to the inheritance tax threshold freeze. While this may be beneficial for the public purse, it is likely to add financial pressure to families already struggling with the existing cost of living crisis.
IHT is the levy on someone’s estate after they have died, which includes their money, possessions and property.
No inheritance tax is usually paid if the value of the estate is below the £325,000 threshold with the standard rate being 40 percent above this threshold.
As well as this, there is no tax if the person who has passed away leaves everything above the threshold to their spouse, civil partner, a charity or a community amateur sports club.
However, the IHT threshold freeze appears to be dragging “more and more people” into paying the levy, according to the latest figures from HMRC.
READ MORE: Pension triple lock ‘needs reform’ for ‘means-tested’ payments
Chancellor Jeremy Hunt announced earlier this year that the freeze on inheritance tax thresholds will remain in place until 2027/28.
With this decision, the Office for Budget Responsibility (ONR) estimated the Government will net more than an extra £1billion in tax revenue.
Receipts for IHT between April to November 2022 came to £4.8billion, which is a sharp rise £0.6billion compared to the same time in 2021.
This will no doubt be a point of contention for many households who are finding themselves dragged into paying the tax as their incomes continue to go up while the threshold remains the same.
DON’T MISS
Rachael Griffin, a tax and financial planning expert at Quilter, emphasised that the IHT threshold freeze has been a “profitable” endeavour for the Government.
She explained: “Inheritance Tax is fast becoming a profitable area for the government, largely due to the rapid rise in house prices seen in recent years causing more people to tip over the threshold.
“Despite this, just last week the Institute for Fiscal Studies called for reform to the tax treatment of pensions on death on the grounds of fairness as it deemed pensions to be ‘a highly effective way of avoiding inheritance tax’, but such reform would likely only make things fairer for the exchequer and not for bereaved families.
“Making pensions subject to IHT would be counter-intuitive to encouraging people to save for their retirement, and with the lack of certainty on the direction of social care it is crucial that people continue to put their own financial plans in place.”
READ MORE: Waspi women wait for compensation verdict as ‘cruel’ rumours fly
However, she also noted the number of middle-class households paying inheritance tax “will only continue to rise” in the coming years with the freeze in place.
Ms Griffin added: “Given IHT thresholds have already been frozen, more and more people will already be dragged into paying what is often regarded as one of the nation’s most hated taxes, let alone if pensions were to be brought into the mix.
“IHT has traditionally been viewed as a tax on wealthier individuals, but the number of people caught in the IHT net has been rising steadily for some time now and this number will only continue to rise as we move further into the freeze.
“Where possible, you should seek professional financial advice to help mitigate IHT costs through careful planning – particularly for the more complex areas such as the Residence Nil Rate Band which is not freely available and has restrictions on how and when it can be used.”
Andrew Tully, technical director at Canada Life, added: “The latest IHT receipts shows we are on for a record breaking year. With thresholds frozen until at least April 2028, more estates will be coming in from the cold and will likely be caught in this widening tax net, and this is despite predicted house price falls in 2023.”
Outside of inheritance tax, receipts from income tax and National Insurance payments between April to November 2022 skyrocketed to £251.4billion. As result, this represents a staggering increase of £31.8billion compared to the same period a year earlier.
During his Autumn Statement last month, Chancellor Jeremy Hunt confirmed that income tax thresholds would remain frozen until 2027/28.
This is welcome news to the Government which has been looking to fill the gap in public finances to mitigate the economic fallout from the pandemic and Brexit.
For all the latest Business News Click Here
For the latest news and updates, follow us on Google News.