23 April 2024
If you are covering the latest HMRC tax receipts and National Insurance contributions statistics, please see the following comment from Rachael Griffin, tax and financial planning expert at Quilter:
“The government’s inheritance tax (IHT) receipts hit an unprecedented £7.5 billion in the last financial year, surpassing the previous record of £7.1 billion. This significant increase has reignited discussions about the fairness and structure of the IHT system, particularly given an increasing number of middle income families now face hefty tax bills thanks to the government’s extended IHT threshold freeze.
“Despite considerable speculation that the government would look to enact IHT reform during the last year, so far all has remained quiet on this front and this morning’s figures illustrate exactly why the Chancellor would have been keen to leave it well alone. Nonetheless, the ever-increasing tax revenue from IHT presents a conundrum for the government as we approach the general election, and it is certainly an area to watch for as the various party manifestos begin to appear.
“The lowering of the headline rate of IHT from 40% would undoubtedly be met with approval from core Tory voters. However, more widely, it would likely prove unpopular given it would benefit the rich at a time when so many across the nation continue to struggle with the cost of living.
“Regardless, there remains an opportunity to address the complexities and inequities of the IHT system, notably the Residence Nil Rate Band (RNRB). The RNRB, while well-intentioned, is marked by its complexity and often excludes a significant demographic, particularly the rising number of childless elderly. As we look towards an aging population with increasing childlessness, the RNRB's exclusionary nature becomes increasingly problematic. A more equitable and simplified IHT system involving raising the nil rate band to £500,000 would not only be fairer but more reflective of the changing demographics and societal structures of this country.
“Elsewhere, the latest figures show receipts from PAYE income tax and national insurance payments for April 2023 to March 2024 were £404.3 billion – up a whopping £24.3 billion compared to the same period a year earlier. Income tax levels remain frozen until 2028, and though the government has now introduced a significant cut to national insurance, the effects of fiscal drag will see more people moving up the income tax bands as their pay rises and the government will continue to see a marked uplift in tax take as a result.
“As the debate on IHT reform continues, it is crucial to consider the impact on middle-income families who find themselves liable for a tax historically associated with the wealthy. The Institute for Fiscal Studies recently reported that the number of estates paying inheritance tax is set to rise from 4% in 2020-21 to over 7% by 2032-33, which we estimate would result in almost 50,000 families facing IHT bills. The government must balance its fiscal responsibilities with the need for a fair and equitable tax system that does not unduly burden families during times of bereavement.”
