Inheritance Tax Collections in the UK Surge as Frozen Thresholds Drive More Estates into Taxation
Rising Inheritance Tax Challenges and Strategies in the UK for 2023
According to the source, the collection of inheritance tax in the UK is on the rise, marking a potential record-breaking year in 2023. Recent data from HM Revenue and Customs (HMRC) underscores this trend, indicating that inheritance tax (IHT) receipts in the first half of this year reached £3.9 billion, signifying a £400 million increase compared to the same period in the previous year. This surge in IHT collections can be attributed significantly to the freezing of IHT thresholds, which has resulted in a greater number of estates falling under the purview of this inheritance tax in the UK.
Factors such as inflation, escalating property values, and the persistence of frozen allowances are increasingly ensnaring more families within the realm of the inheritance tax in the UK. Despite the fact that individuals’ wealth may not have markedly increased, the strain of the cost of living crisis is causing them to perceive themselves as less affluent. Consequently, inheritance tax is garnering a growing reputation for unpopularity among the British population.
With the freezing of IHT allowances set to persist until 2028, it is anticipated that a greater number of taxpayers will find themselves subject to inheritance tax in the UK due to a phenomenon known as fiscal drag. This is an outcome of wage increases in line with inflation, which elevates the overall tax burden borne by individuals. Notably, the most recent data from the Office for National Statistics indicates that UK wages have surged at a pace exceeding that of inflation, further accentuating this pattern.
Inheritance Tax in the UK Challenges and Strategic Solutions for 2023
The confluence of frozen tax thresholds and allowances, together with wage inflation and the years of escalating property values, is collectively propelling a higher number of taxpayers into the domain of inheritance tax in the UK. Experts are forecasting that 2023 is poised to be a record-breaking year for the UK Treasury regarding the collection of inheritance tax in the UK.
To address their inheritance tax obligations in the UK, individuals can explore various strategies. These may include early gifting of assets, with full inheritance tax exemption materializing after a period of seven years. Alternatively, they can opt to invest in companies that qualify for Business Relief, providing exemption from inheritance tax in the UK after a span of two years.
The establishment of trusts stands as an effective means to exercise control over the dispersion of wealth and curtail inheritance tax liabilities. Furthermore, the allocation of the main residence to offspring or grandchildren can augment the inheritance tax allowance by an additional £175,000, and this allowance can be shared with spouses.