Inheritance tax receipts hit £1.5bn in the first two months of the current tax year, according to the latest data released by HM Revenue and Customs (HMRC).
This is £98m higher than the previous tax year, and continues an upward trend over the last two decades.
The latest data comes as the chancellor Rachel Reeves is reportedly considering changes to inheritance tax on non-doms for assets held around the world.
Before Labour came to power, the party claimed that the crackdown on non-dom trusts would bring in £430m each year, although the Office for Budget Responsibility (OBR) estimates following the Budget found that the tax would bring in half as much.
The changes has also led to a sharp slowdown in prime central London property market activity, with the Financial Times reporting that the chancellor has now accepted that “tweaks” to current rules are needed.
As of April, global assets have been slapped with a 40% inheritance tax, which the FT claims is the aspect of the rule changes that has deterred non-doms.
The Treasury said: “The UK remains highly attractive. Our main capital gains tax rate is lower than any other G7 European country and our new residence-based regime is simpler and more attractive than the previous one, whilst it also addresses tax system unfairness so every long-term resident pays their taxes here.
“As the chancellor set out at Spring Statement, the government will continue to work with stakeholders to ensure the new regime is internationally competitive and continues to focus on attracting the best talent and investment to the UK.”
Nicholas Hyett, Investment Manager at Wealth Club said: “If recent rumours are to be believed, the chancellor is considering a U-turn on the decision to subject non-doms’ global assets to inheritance tax. This was a decision that was originally expected to earn HMRC an additional £430 million a year.
However, the potential U-turn is no doubt down to the exodus of wealthy non-doms over the last six months or so. Not only does that mean the tax will raise less than hoped, but the UK also loses all the other benefits these wealthy residents bring – including spending, investment and philanthropy.
It shouldn’t come as a surprise to the government. Changes to inheritance tax was always going to be the bit that was both least popular and most easy to escape. City high earners need to be in the UK for their salaries, the mega-wealthy can be in anywhere in the world. The UK has a lot of appeal – but not enough to give up 40% of your families wealth. It’s a shame the government will only listen once the numbers start to do the talking.
Comments from non-dom advisers suggest 30% or more of their clients are considering ditching the UK for somewhere with a more favourable tax regime, and many have already done so already. The problem with the planned U-turn is that the horse has already bolted – plans are made and the risk of future changes from a government which appears be hostile to the global wealthy is too high.
If the government wants to change that perception it needs to work stop scoring own goals and look reliable. Most recently it has emerged that the Deputy Prime Minister has been pushing for IHT relief on AIM to be abolished altogether – just months after the change to 50% relief was announced. This is terrible news for AIM. The new 50% IHT relief is back in question, investments will dry up as a result and it will be even harder for small UK companies to raise money.
The government’s raids on historically IHT free investments and assets – like pensions, private company shares and AIM shares – create exactly the kind of uncertainty that puts people off making investments.”
Ian Dyall, head of estate planning at wealth management firm Evelyn Partners, highlights that the steady annual rise in IHT receipts has almost become ingrained as inflation drags more assets and more estates across the frozen nil-rate bands.
He commented: “May’s Inheritance Tax receipts data came in as expected, continuing the predictable annual rise that has become the norm in recent times. The steady annual rise in IHT receipts has almost become ingrained as inflation drags more assets and more estates across the frozen nil-rate bands.
“IHT receipts are expected to continue rising as the Government moves ahead with its plan to reduce available reliefs by capping Business Relief and Agricultural Property Relief. Unspent assets in Defined Contribution pensions are set to fall within the scope of the death tax in April 2027, a change already creating a planning headache for those looking to pass on wealth to their loved ones.
“One way to mitigate IHT is through lifetime gifting, something clients are increasingly approaching us about in a bid to protect their beneficiaries from tax. Making regular gifts using the ‘normal expenditure out of surplus income’ exemption is one popular option, as is exploring longer-term gifting plan, such as starting the ‘seven-year clock’ ticking on larger gifts.
“How long clients can take advantage of these options remains to be seen. The Government may choose to overhaul the gifting regime at some point, potentially extending the seven-year rule to 10 years – a move that would create an extra hurdle for those wanting to pass on wealth in a tax-efficient way.”
Read the orginal article: https://propertyindustryeye.com/inheritance-tax-receipts-raise-1-5bn-in-two-months-amid-rumours-of-u-turn-for-rachel-reeves/
