Inheritance Tax (IHT) receipts for April 2021 to October 2021 were £3.6billion according to HMRC data released this week, £600million higher than the same period in 2020. Ami Jack, the Head of National Tax at Smith & Williamson, noted Rishi Sunak will likely welcome this news.
“The Treasury needs to do everything it can to boost its coffers”
Ms Jack noted the rising amount collected is relatively unsurprising given the Government’s recent commitments.
“Following the Chancellor’s extensive spending commitments announced in the recent Budget, the Treasury needs to do everything it can to boost its coffers to pay for the plans,” she said.
“The continuing year-on-year rises in IHT collections will therefore be welcomed by the Treasury. The Budget was light on personal tax announcements, with no major changes to IHT. Outside of the Budget, however, the Government announced a 1.25 percent increase in national insurance contributions and income tax on dividends from April 6 2022, demonstrating it is not afraid of tax rises and there may be more changes to come to personal taxes in the short to medium term.”
With this in mind, Ms Jack urged families to consider their tax strategies in the face of any potential changes or hikes.
She continued: “With the outlook for personal taxes uncertain, people should continue to carefully consider their tax planning and make the most of current allowances before any further possible changes are introduced. By considering options such as making gifts and investing tax-efficiently, there are a number of areas of tax planning that may help reduce an IHT bill.”
READ MORE: Inheritance Tax: Britons without Wills miss out on reducing IHT bill
“The taxman may be rubbing his hands in glee”
IHT is not the only tax to see increases. The same data from HMRC showed Britons paid £392billion in tax between April and October this year, which is up £99.8billion from the same period a year earlier – or 34 percent.
Receipts from Income Tax, National Insurance, Capital Gains Tax and VAT among others were all up, but additional analysis from Hargreaves Lansdown showed stamp duty payments saw particularly large pikes. In England taxpayers paid £10.2billion in stamp duty, up to an “eye-watering” £4.1billion in a year.
Sarah Coles, a personal finance analyst, at Hargreaves Lansdown, commented: “The enormous jump in stamp duty this tax year demonstrates the impact of the stamp duty holiday. And while the taxman may be rubbing his hands in glee, buyers are more likely to be wringing theirs.
“Tax is up a third in the first half of the tax year and stamp duty has soared by two thirds. And while the figures are distorted enormously by the impact of the pandemic, the dramatic impact of the stamp duty holiday is clear.
“It’s difficult to compare tax years, because the Government brought in a set of rules to try to make it easier to manage tax bills, and another set to get us to spend more money and buy more property.
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“However, we can see the enormous impact of the stamp duty holiday. It has pushed the average house price to a record high of £270,000 – up £28,000 in a year, and driven transactions higher. This year we had the busiest ever September in the property market, as buyers rushed for the final stamp duty holiday deadline.
“In terms of stimulating the market and generating tax, the move was clearly effective. However, if you’re trying to get onto the property ladder, or move up it, the impact is likely to be far less welcome. As the tax break dies away, buyers now have nothing to gain from the short-term measure, and in the process it has made the challenge of buying a home even harder.”
In the coming months, HMRC may also put even more resources into tax collection. Recently, the National Audit Office produced a report on how well HMRC managed tax debt through the pandemic.
In summarizing the report, the National Audit Office said: “At the onset of the first lockdown, HMRC acted quickly, pausing debt collection to reduce pressure on debtors and working to improve its understanding of how the pandemic was affecting taxpayers.
“It subsequently launched its Return to Collection campaign and made it easier for taxpayers to repay debt online. Early indications were encouraging, with taxpayers repaying debt faster than expected and stakeholders welcoming HMRC’s understanding tone. However, HMRC also forecasts that higher levels of tax debt will persist.
“HMRC faces several years of managing the impact of the pandemic on tax debt and current staffing is unlikely to be enough to manage the increased workload. It made efficiencies before the pandemic but it did not improve overall levels of debt collection and it was writing off more debt. It estimates that adding staff and private sector capacity would have the most success in increasing debt collection.”
Dawn Register, Head of Tax Dispute Resolution at BDO, commented on this report.
“With many COVID-19 support measures now withdrawn, there is likely to be a strong emphasis on collecting unpaid tax regardless of whether HMRC remains understaffed,” she said.
“A lack of resources could even result in more punitive action for non-compliance given that HMRC will be under pressure to resolve situations quickly.
“The Government is investing £100million into HMRC to build up its Taxpayer Protection Taskforce to go after an estimated £5.2billion in pandemic support fraud but the current tax debt of £42billion dwarfs this figure, and it must be worth investing more in HMRC’s debt management service to collect that. In my experience, better service from HMRC’s debt team helps struggling businesses and individuals pay back more and faster, so it has to be a good investment for the Government in the long run.”
Ms Register concluded by urging taxpayers to act where they can.
“The NOA report acknowledges that pandemic tax debts will be outstanding for years and it is vital that both the Government and HMRC accept that this is a long term issue, she said.
“Tragic cases related to taxes owed for the disguised remuneration loan charge led to HMRC allowing tax debt payment plans over five years and a similar approach will be needed with pandemic related tax debts.
“If HMRC allows much longer ‘Time To Pay’ arrangements for pandemic tax debts, far fewer individuals and businesses will be pushed over the edge into bankruptcy and the Government will start getting tax debts paid down. Monthly or quarterly installment plans are generally helpful and practical for both sides.
“Taxpayers with overdue tax bills must not bury their heads in the sand – if they have not received enforcement demands, they are likely to do so soon, which if not dealt with appropriately will lead to even more challenging times ahead.”
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