22 October 2024
If you are covering the latest HMRC tax receipts and national insurance contributions data, please see the following comment from David Denton, technical consultant at Quilter Cheviot:
Inheritance tax
“This morning’s tax receipts and national insurance contributions data from HMRC reveal inheritance tax (IHT) receipts rose to £4.3 billion in April to September 2024, a further £0.4 billion boost to government coffers compared to the same period last year.
“Labour’s first budget is now just over a week away, and rumours around potential changes to IHT have been rife. IHT is a highly emotive issue, and it has been ripe for reform and simplification for many years given it is full of impenetrable and irrelevant details in need of review.
“However, reports that the government could make a quick tax grab by removing the complex but valuable residence nil rate band, or by extending the current seven year rule to ten years, could face significant backlash. Similarly, the reform or even closure of several tax reliefs such as agricultural and business relief, which were touted when the first rumours of potential budget changes broke, could have the knock-on effect of AIM shares losing their inheritance tax break - a move that would seem entirely at odds with a government looking to drive growth and investment in UK assets.
“Historically, inheritance tax has been viewed as a tax on the wealthy, but this is simply no longer the case. IHT is one of the most hated taxes in Britain and can be incredibly polarising given the rich can often avoid it by employing expertise to help them navigate the complexities of the tax and the available reliefs, while those without such resource can be disadvantaged.
"According to the government, the average UK house price now sits at £293,000, rising significantly in certain areas of the country such as London and the South East. This leaves just £32,000 before the full nil rate band is exhausted and someone’s estate becomes exposed. However, given just yesterday Rightmove reported that the average new seller asking price is now £371,958, this could automatically make £46,958 of someone’s home taxable if they are not entitled to use the complex residence nil rate band.
“If reports are true and Labour opts to make IHT more punitive, it could choose to balance this by modernising gifting laws. Simplifying the IHT regime and increasing the annual gifting exemption could ease the complexity of transferring assets and help families pass wealth on during their lifetime. Raising the gifting timescale would encourage earlier wealth transfer, potentially boosting consumer spending.
Income tax
“This morning’s figures also show PAYE income tax and national insurance receipts for April to September 2024 soared to £211.9 billion, an increase of £5.7 billion compared to the same period last year.
“Labour has long since pledged that it would not increase income tax, national insurance, or VAT – all of which could have helped the government shore up significant amounts of money had it opted to make changes to the taxes. Instead, Labour now finds itself between a rock and a hard place given it has a huge public finance ‘black hole’ to fill and a relatively limited number of ways in which to do it without backtracking on its manifesto pledge.
“While Labour may not increase income tax directly, it has been widely reported that the Chancellor is considering increasing the income tax take by stealth, freezing thresholds for an additional two years to the 2029/30 tax year. Our estimates show a further two year freeze on income tax thresholds could result in a million more pensioners paying the tax, as well as up to a further 1.5 million more people being dragged into paying the higher and additional rate of tax. If wages increased by 3% each year, our calculations show that someone earning £60,000 today could expect to pay an additional £3,579 in income tax between the 2028-29 and 2029-30 tax years compared to if allowances had kept up with earnings.
“The Labour government will need to tread very carefully should it opt to make any changes to income tax, be that by stealth or otherwise, as it risks greatly watering down its manifesto pledges by pulling more and more people into paying the tax regardless.”
