Rachel Reeves’s collection of £2.2 billion from the ‘death tax’ marks a significant fiscal milestone as the UK government readies tax reforms ahead of the Autumn Budget.
- Latest figures reveal a remarkable £736 million in inheritance tax collected last month, contributing to a fiscal year total of nearly £4.3 billion, a 10% rise from the previous year.
- The ‘death tax’, levied at 40% on estates exceeding £325,000, is under review with possible changes such as an extended ‘seven-year rule’ and potential removal of business and agricultural land exemptions.
- Critics argue that agricultural land exemptions, initially for farmers, benefit the wealthy, prompting Rachel Reeves to reassess these reliefs amidst a budgetary need to fill fiscal gaps.
- Rising asset values, with increases in the FTSE 100 and UK house prices, alongside frozen tax thresholds, are drawing more estates into the inheritance tax bracket.
According to the Office for National Statistics, the UK government has seen a notable increase in inheritance tax revenues, collecting £736 million last month alone. This brings the total for the financial year to nearly £4.3 billion, marking an increase of over 10% compared to the same period last year. This rise highlights the growing contribution of inheritance tax, commonly known as the ‘death tax’, which is charged at 40% on estates exceeding £325,000.
There is speculation that Rachel Reeves is considering several changes to this controversial tax. One potential adjustment involves extending the current ‘seven-year rule’, which allows for tax-free gifts if the donor lives for seven years post-gifting, to a 10-year period. Additionally, there’s discussion about removing certain tax reliefs that apply to business assets and agricultural land.
The exemption for agricultural land was initially intended to help farmers transition their property to the next generation. However, critics have pointed out that such reliefs are often exploited by the wealthy to minimize estate taxes. In light of these criticisms and the need for increased government revenue, Reeves is reportedly evaluating these exemptions as part of a broader strategy to reform inheritance tax (IHT).
Sarah Coles, a personal finance expert, has remarked on the issues caused by static income and inheritance tax thresholds, coupled with cuts in capital gains and dividend tax allowances. She suggests that the government’s need to address fiscal deficits might lead to increased taxes across various sectors.
The surge in inheritance tax receipts is partially attributed to the rising value of assets over the past year. The FTSE 100 has seen a 12.5% increase, and UK house prices have risen by an average of 2.8% as of August. These factors, along with frozen tax thresholds, are pushing more estates into the IHT bracket, amplifying the tax burden on families.
Beyond inheritance tax, the government is also benefiting from increased revenues in other asset-based taxes. For example, stamp duty land tax on property purchases reached £1.2 billion in September, up from £1.1 billion in the same month last year. Similarly, stamp duty on shares generated £263 million, and capital gains tax yielded £192 million, reflecting a 16% year-on-year increase.
The imminent tax reforms, aimed at bolstering government revenues amid fiscal challenges, are anticipated to stir debate among sectors affected by increased tax liabilities.
