The Treasury collected an eye-watering £2.8billion in inheritance tax in the first four months of the tax year, marking a nine percent increase—£230 million—compared to the same period last year. July saw the second-highest monthly intake ever, with £749million collected.
The increase in inheritance tax receipts is partly due to the frozen tax thresholds. Since 2009, the threshold at which inheritance tax applies has been held at £325,000 and will remain at this level until at least April 2028.
Estates above this threshold are taxed at 40 percent, with an additional £175,000 allowance for homes left to direct descendants.
As property prices and asset values rise, more families are being dragged into inheritance tax payments—a phenomenon known as fiscal drag.
This trend has intensified speculation that Chancellor Rachel Reeves may consider raising the tax further to help address a £22billion shortfall in public finances.
This speculation follows a record £82.5billion in total tax receipts for July, as noted by Joe Neal of tax firm Blick Rothenberg. Mr Neal warned that despite strong tax collections, including record income tax receipts and rising corporation tax figures, the Government’s financial outlook remains precarious.
Mr Neal highlighted: “£32.7billion of the July tax take came from income tax, with self-assessment receipts totalling £12.9billion, up from £11.8billion the previous year. [The increase] suggests that fewer self-employed individuals are reducing their payments, an early sign that small businesses are becoming more profitable.”
He also pointed out that PAYE receipts for the first quarter of 2024/25 are five percent higher than the previous year, driven by above-inflation pay rises in the public sector.
Corporation Tax receipts have risen by 8.6 percent compared to the first quarter of 2023/24 and by 22.5 percent from 2022/23, reflecting increased profitability as companies adapt to higher tax rates.
Despite these positive trends, Mr Neal cautions that the Government’s financial pressures could lead to further tax hikes. He said: “With the Government announcing that the amount of spending needed being ‘much worse than expected’, further tax rises are expected to be announced in the October budget.
“Taxpayers already are feeling that the tax burden is high and these tax rises could be the tipping point that drives wealthy individuals and large companies to leave the UK. Making Labour’s healthy tax income quickly disappear.”
Express.co.uk has contacted the Treasury for comment.
