Rachel Reeves has achieved a record collection of £2.2 billion in inheritance tax ahead of the upcoming Autumn Budget.
- Last month’s collections alone reached £736 million, contributing to a financial year total of nearly £4.3 billion.
- The potential for reforms to inheritance tax includes extending the ‘seven-year rule’ to ten years and removing certain reliefs and exemptions.
- The value of assets has increased, with the FTSE 100 rising by 12.5% and UK house prices by 2.8%, boosting tax receipts.
- The UK government is likely to introduce tax reforms amidst a challenging fiscal backdrop, impacting families and businesses.
Rachel Reeves has achieved a record collection of £2.2 billion in inheritance tax, referred to as ‘death tax’, just ahead of the Autumn Budget. The most recent figures from the Office for National Statistics show that in September alone, £736 million was collected, pushing the total for the current financial year to nearly £4.3 billion, an increase of over 10% compared to the previous year. The tax is currently applied at 40% on estates exceeding £325,000.
There is strong speculation around imminent reforms to the inheritance tax framework. These include potentially extending the ‘seven-year rule’ to ten years, which dictates that gifts are tax-free if the donor survives for seven years after the gift is made. Additionally, there is discussion around removing tax reliefs and exemptions, specifically those for shares on the Alternative Investment Market (AIM) and for businesses and agricultural land.
Although earlier introduced to facilitate the transfer of farming land to future generations, the relief for agricultural land is now under scrutiny. Critics argue it is often exploited by affluent individuals to minimize their estate’s taxable value. Reeves is revisiting these reliefs as part of comprehensive reforms to enhance Treasury revenue, addressing the significant fiscal deficit the government faces.
A surge in asset values is a key factor behind rising inheritance tax receipts. The FTSE 100 index increased by 12.5%, and average UK house prices rose by 2.8% in the year leading up to August. Alongside frozen tax thresholds, these factors are pulling more estates into the tax net. Similar trends are observed in other taxes; stamp duty on properties reached £1.2 billion and stamp duty on shares increased to £263 million. Capital gains tax has also grown to £192 million, a 16% rise from the previous year.
In response to this complex fiscal canvas, the government is planning reforms to boost revenue through potential changes to inheritance tax and possibly other taxes such as capital gains tax. This proactive approach might face resistance, especially if it raises the tax load on individuals and businesses during already challenging economic conditions.
The government’s anticipated tax reforms are expected to generate significant revenue but may face opposition from affected parties.
