05 December 2024
If you are covering the latest data from HMRC surrounding the cost of various tax reliefs, please see the following comment from Rachael Griffin, tax and financial planning expert at Quilter:
"The latest non-structural tax relief statistics reveal the growing fiscal burden of tax reliefs, which cost the Treasury £207 billion in 2023-24, up £3 billion from the previous year. Beneath this overall increase lie sharp rises in key areas, including inheritance tax (IHT), Capital Gains Tax (CGT), and Individual Savings Accounts (ISAs), reflecting changing economic conditions and taxpayer behaviour. Notably, the cost of Agricultural Property Relief (APR) surged by £335 million (105%), with other IHT reliefs such as the Residence Nil Rate Band (RNRB) and transfers between spouses and civil partners rising by £1.1 billion (88%) and £2.2 billion (87%) respectively in the period 2019 to 2020 to 2023 to 2024. These increases set the backdrop for recent Autumn Budget reforms aimed at curbing rising costs while maintaining support for key sectors.
"APR, which is designed to help preserve family farms, has seen costs rise significantly due to increasing farmland values and more estates claiming the relief. However, the government’s introduction of a £1 million cap on APR from 2026 has sparked uproar among farmers. Estates above the cap will receive only 50% relief on the excess, exposing larger farms to potentially large tax bills. For example, a £3 million estate that previously qualified for full relief could now face an IHT bill of up to £400,000. Farmers argue these changes could destabilise rural economies and force the sale of productive assets, prompting families to urgently revisit succession plans. The changes have also seen large scale protests although a U-turn from government looks unlikely.
"ISAs have seen a dramatic £3.8 billion (97%) increase in cost, reflecting rising interest rates and recent cuts to the dividend allowance and capital gains exemptions. Higher returns on cash ISAs, combined with the reduced allowances, have made ISAs an increasingly attractive vehicle for tax-efficient savings. Over the longer term, the cost for Treasury of tax relief on ISAs is expected to continue rising as wealth accumulates within these accounts, though this sharp increase may prompt policymakers to explore limits on contributions or overall ISA values. ISAs remain an excellent way to mitigate against large tax bills especially as the general tax landscape becomes more punitive.
"These trends illustrate the delicate balance the government must strike between supporting economic activity and addressing the fiscal cost of reliefs. For taxpayers, the combination of frozen thresholds, reduced allowances, and targeted reforms makes proactive financial planning more essential than ever. Whether navigating IHT changes, CGT reforms, or optimising ISA contributions, early action and careful planning is key."
