21 August 2024
If you are covering HMRC tax receipts and National Insurance contributions for the UK, please see the following comment from Rachael Griffin, tax and financial planning expert at Quilter:
"The latest HMRC figures reveal that inheritance tax (IHT) receipts have surged to £2.8 billion for April 2024 to July 2024, which is £0.2 billion higher than the same period last year. This increase, ahead of first Labour’s first autumn budget, will rekindle debates about whether this tax will be increased as the government attempts to shore up public finances.
"At the same time, PAYE income tax and national insurance receipts for April 2024 to July 2024 have climbed to £143.4 billion—an increase of £2.3 billion compared to the same period last year. While Labour has pledged not to raise taxes on working people, the ongoing freeze on income tax thresholds, combined with wage growth, is pushing more individuals into higher tax brackets, further driving up these receipts. While it’s unlikely that there will be any changes to the thresholds at the budget this is not a situation that can run and run and its pledge to not tax working people becomes less meaningful as more people who don’t consider themselves wealthy pay higher rate tax.
"Speculation is rife that the Chancellor might introduce changes to IHT, particularly targeting Agricultural Property Relief (APR) and Business Property Relief (BPR). These reliefs, which currently allow farms and family businesses to be passed down without incurring prohibitive tax liabilities, might be scaled back. Labour might opt to remove APR for those who do not actually own farmland and BPR where it doesn’t meet the intention of the relief i.e. protecting small businesses being kept ‘in the family’. However, the unintended consequences could be huge especially for the AIM market which relies heavily on the shares being eligible for BPR after holding the shares for two years. This might therefore hamper Labour’s stated aim of getting more investment into UK plc.
"As Labour navigates these complex issues in the upcoming budget, there is a strong argument for simplifying the IHT system and making it more appealing to gift during your lifetime. The current system’s complexity often leads to confusion and inequities, with wealthier estates better equipped to navigate and minimise tax liabilities. A simpler system could not only reduce administrative burdens for taxpayers and HMRC but also make the tax fairer. Increasing the gifting allowances also would encourage more wealth to cascade down the generations.
"Simplifying IHT could involve increasing the nil rate band, which has remained static for over a decade, or potentially lowering the headline IHT rate in exchange for eliminating or reducing complex reliefs. Such reforms could make the system fairer, particularly for middle-income families who increasingly find themselves liable for a tax originally intended for the very wealthy.
"As the debate on IHT reform continues, the upcoming budget will be crucial in determining whether Labour chooses to maintain the current complex reliefs or pivot towards a simpler, more equitable system that better reflects modern economic realities."
