21 November 2023
If you are covering the latest HMRC tax receipts and National Insurance contributions statistics, please see the following comment from Rosie Hooper, chartered financial planner at Quilter:
“PAYE income tax and National Insurance receipts from April to October 2023 reached £232.5bn while inheritance tax receipts hit £4.6bn, £11.8bn and £0.5bn more than the same period last year, respectively. This huge growth illustrates why the Chancellor is weighing up tax cuts for tomorrow’s Autumn Statement to boost popularity with the electorate ahead of an election year.
“Though a cut to the headline rate of inheritance tax has been widely rumoured, it seems more likely now that this plan will be shelved in favour of a cut to income tax or NI – a change that would be more welcome given it could make a difference to lower income families, even if only marginal. A 1p cut to income tax or national insurance could allow basic rate taxpayers to save a maximum of £377 annually, increasing the disposable income of those households who need it most.
“While a cut to income tax or National Insurance would be welcomed, the government faces a tricky balancing act when it comes to risk vs reward. Increasing people’s disposable income could lead to increased consumer spending and stimulate economic growth, but the reduced government revenue could impact public services and investments, and risks causing inflation to stay higher for longer or even to start increasing again.
“The increasing revenue from inheritance tax has caused a conundrum for the government given how emotive the tax can be and its power to split voters. Though a steadily increasing number of families are paying inheritance tax since the Chancellor extended the IHT threshold freeze until April 2028, it still impacts relatively few people and reports that he was considering a cut to the headline rate came under heavy fire as a result. Some even call inheritance tax a voluntary tax due to the number of exemptions available. Ways to lower your IHT bill include:
Making full use of any allowances:
“The current IHT system allows up to £175,000 of the family home to be passed on tax-free, which is effectively doubled to £350,000 when combined with the allowance of a spouse or civil partner. On top of this, the £325,000 standard nil-rate band is available, meaning it is possible to pass on £1 million IHT free as a couple. However, it is important to remember the RNRB only works for those with direct descendants to inherit the family home and is capped at the value of the property being inherited – less any outstanding mortgage.
Making a gift to family members:
“There are other ways to reduce IHT exposure, such as gifting to family members. Gifts to spouses or civil partners are completely free of IHT and each tax year up you can gift up to £3,000 with your annual exemption, so as a couple this could be a combined £6,000 a year. In addition, there is no limit on excess income – above normal expenditure – that can be gifted.
Considering a transfer:
“More significant gifts classed as Potentially Exempt Transfers (PETs) or Chargeable Lifetime Transfers (CLTs) will take seven years to see the IHT benefit. As well as reducing the taxable estate value, larger transfers can be particularly useful for estates of more than £2 million which are impacted by the RNRB taper as the gifts can immediately reclaim the extra band.
“Seeking professional financial advice can help people manage their tax affairs and make the most of their money, particularly if changes come into play during tomorrow’s Autumn Statement that may complicate current plans. The rules and restrictions surrounding certain aspects of tax planning can be difficult to navigate, particularly where inheritance tax is concerned, so speaking to a financial planner is key to ensuring you plan effectively and mitigate unnecessary costs.”
