Pandemic pushes inheritance tax to record high

Inheritance Tax

Official figures show that during the pandemic, Britons paid record amounts in inheritance tax and stamp duty. A higher number of people dying with coronavirus meant over £570million was paid out in inheritance tax in July this year, which is the most ever paid in a single month, according to the Office for National Statistics.

But the rise was also driven by more estates getting caught in the IHT net after a year of increases in house and share prices, and the Chancellor’s decision to freeze the level at which people start paying the tax, analysts have noted. The Treasury pocketed a total of £2.1billion in IHT between April and July this year, which is an extra £510million compared to the same period last year.

There is usually a six-month wait between when someone dies and when the tax is paid.’ This means that the current situation is a result of the tragically high death rate in early 2021. The HMRC said it was too early to say whether the higher death rate and higher tax intake were linked. ‘But given that the last peak in IHT was in October, six months after the first wave, we can see a possible link. But the record levels of IHT forked out by families inheriting estates from their deceased relatives are also a results of other factors.

Nil-Rate Band

The announcement in this year’s Spring Budget that both the nil rate and residence nil rate bands will be frozen until at least April 2026, resulting in increased IHT bills for families as more estates are brought into scope on the back of soaring property and share prices, will no doubt be one of the key drivers for the uplift. In the last financial year, IHT receipts totalled £5.35billion, up from £5.16billion in the 2019-2020 tax year.

Booming property market 

Meanwhile, a booming property market coupled with the tapering of stamp duty holiday since June have pushed stamp duty paid by home buyers to record highs in recent months. Stamp duty receipts actually fell between April 2020 and March this year, owing to a drop in property sales during the lockdown and the introduction of the stamp duty holiday.

But receipts from property purchases hit £1.3billion last month, the highest month on record, the ONS said. That’s because since the end of June, buyers have to pay for stamp duty on purchases above £250,000, down from the £500,000 threshold during the main phase of the tax holiday.

The highest month for stamp duty receipts was March, the month when stamp duty was supposed to end but was instead extended. The increase was attributed to the ‘ongoing strength of the property market, as well as foreshadowing ahead of the introduction of the non-resident surcharge and the general uplift in economic confidence following the rollout of the vaccine and announcement of the easing of lockdown,’ according to the ONS.

Overseas Buyers 

Overseas buyers purchasing property in England and Northern Ireland are now subject to a 2 per cent stamp duty surcharge. The new surcharge will be in addition to the existing 3% surcharge for anyone buying a second property in the UK, meaning that an overseas investor who already owns a property anywhere in the world will be liable for both and will see a 5% increase in standard stamp duty levels. Stamp duty receipts doubled from around £2.1billion between April and July last year to over £4billion in the same quarter this year. Stamp duty is a classic example of how cutting a tax can help change behaviour so dramatically that it boosts the Treasury’s coffers, as people brought sales forward to take advantage of the tax break.

In July, the Treasury dug even deeper into our wallets, with total tax receipts reaching £67.3 billion, the highest level since January. Total HMRC receipts for April to July this year were £226.2billion, which is £76billion higher than in the same period a year earlier. HMRC said the intake was “down to the exceptional high number of transactions” due to the tapering of the stamp duty holiday on 30 June.