There may be tax cuts in today’s Autumn Statement if government-fuelled rumours are to be believed - but there’s been a dramatic rise in tax receipts announced by the Treasury just hours before Jeremy Hunt’s speech.
Inheritance tax receipts have been on the rise and stand at £4.6 billion for the period from April to October this year. This is £0.5 billion higher than the same period last year.
IHT is a 40 per cent tax on the estate of those who have passed away, however it is only applied to the amount above the threshold of £500,000 if passed to the children or grandchildren of the deceased, while no tax is owed if the estate is passed to a spouse, civil partner, charity or community organisation. If the estate is passed to someone that doesn’t fall within any of these categories, tax is charged on anything above the threshold of £325,000.
Helen Morrissey, an analyst at business consultancy Hargreaves Lansdown, says: “Early rumours suggested the government was keen to cut inheritance tax [in the Autumn Statement]. This is a widely hated tax, despite the fact only about four per cent of estates pay it.
“It has been reported the Chancellor is looking to slash the tax rate from its current 40 down to 30 per cent or even 20 per cent. It’s true that IHT receipts have been creeping up – last year was a record breaker with receipts standing in excess of £7 billion. This current year is well on track to surpass it as we are already £0.5 billion ahead of where we were last year.
“However, reports suggest government is cooling on the idea, given the optics of favouring the better off over those at the sharp end of the cost-of-living crisis. Looking more widely, it is a tax that is in need of wider reform.
“Nil rate bands and gifting thresholds have remained untouched for years and this means many people who may not have ever thought they would have an IHT liability are being caught in the net due to high house price growth, for instance. Increasing nil rate bands in particular could play a major part in lifting many of these people out of the net, while also reducing the liability of wealthier households.”
Other tax reductions rumoured to be under consideration include a reduction in income tax or national insurance, although there are concerns these could prove inflationary.
Morrissey adds: “It’s fair to say the tax take has soared, with receipts currently standing at a whopping £11.2 billion more than in the same period last year. Again, this is down to tax thresholds that haven’t been increased in years, dragging more and more people into paying higher tax. Any reduction would prove incredibly popular and would be in line with the Prime Minister’s previous pledge to reduce income tax.”
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