Chancellor Rachel Reeves has received £2.2 billion in inheritance tax (IHT) receipts in the three months to September, in anticipation of possible tax changes in her upcoming first Budget.
According to figures from the Office for National Statistics (ONS), inheritance tax brought in £736 million last month alone, taking the total for this financial year to nearly £4.3 billion—an increase of more than 10% compared to the same period last year. a year.
Inheritance tax, often called “death tax,” is currently charged at 40% on assets over £325,000 when a person dies. Reports suggest Reeves is considering a series of controversial tax changes, including extending the “seven-year rule”—which allows gifts to be transferred tax-free after seven years—to 10 years. There is also speculation that he may remove the exemption from shares listed on the Alternative Investment Market (AIM), as well as the exemption for businesses and agricultural land.
Possible changes to inheritance tax laws
Farmland exemptions were originally designed to help farmers pass land on to the next generation, but critics say they are often exploited by the wealthy to reduce their inheritance tax liability. Reeves is reportedly reviewing these benefits as part of a wider effort to reform IHT and generate more revenue for the Treasury, which is under pressure to close a huge funding gap.
Sarah Coles, head of personal finance at Hargreaves Lansdown, commented: “Even if the Government makes no changes at all, we will continue to face very high tax bills, thanks to the income tax freeze and the limits on inheritance tax and capital gains tax cuts. capital gains tax and dividend tax allowances. The need for more money to fill the black hole in government finances would increase any of these taxes.”
Higher commodity prices lead to higher tax revenue
Inheritance tax receipts have increased due to the increasing number of assets in the past year. The FTSE 100 rose 12.5%, while UK house prices rose by an average of 2.8% in the year to August. These rising property values, combined with the frozen tax thresholds, are putting pressure on many areas in the IHT bracket.
Apart from inheritance tax, the Chancellor also benefits from other property based taxes. Land stamp duty, which is levied on property purchases, generated £1.2 billion in September, up from £1.1 billion in the same month last year. Similarly, stamp duty on shares brought in £263 million, a £40 million increase from 2023, while capital gains tax, levied on profits from the sale of investments, raised £192 million—up 16% year-on-year.
Increasing tax burden and upcoming changes
With the government facing a challenging fiscal situation, Reeves is expected to use the Budget to introduce a series of tax reforms aimed at raising revenue. These could include changes to inheritance tax, capital gains tax, and possibly new measures to deal with the rising cost of public services.
Although many of the proposed reforms would increase the Exchequer by a significant amount, they are likely to face opposition from affected sectors and individuals, particularly if they increase the tax burden on families and businesses.
