Inheritance tax receipts hit £1.5 billion in the first two months of the current tax year, according to the latest data released by HM Revenue and Customs (HMRC). This is £98 million higher than the previous tax year and continues an upward trend over the last two decades. The latest data comes as Chancellor Rachel Reeves is reportedly considering changes to inheritance tax on non-domiciled individuals (non-doms) for assets held around the world.
Before Labour came to power, the party claimed that a crackdown on non-dom trusts would bring in £430 million 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 have also led to a sharp slowdown in the prime central London property market, 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 stated: “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 in the 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, mentioned: “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.
Inheritance tax trends and proposals
This was a decision that was originally expected to earn HMRC an additional £430 million a year. However, the potential U-turn is likely due to the exodus of wealthy non-doms over the last six months.
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.”
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.”
Dyall added: “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. Clients are increasingly approaching us about this 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 a longer-term gifting plan, such as starting the ‘seven-year clock’ ticking on larger gifts.
However, 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 ten years – a move that would create an extra hurdle for those wanting to pass on wealth in a tax-efficient way.”
The implications of these tax changes continue to unfold, sparking significant debate and uncertainty within the financial community and among high-net-worth individuals.
