Inheritance tax (IHT) receipts increased by £200m year-on-year in the second quarter of 2024, rising to £2.8bn for the period between April and July, the latest figures from HMRC have revealed.

The increase comes ahead of the Labour government’s first autumn Budget and has done nothing to quell rumours that it could seek to make changes to IHT as it looks to raise cash to plug funding shortfalls.

“Speculation is rife that the Chancellor might introduce changes to IHT, particularly targeting Agricultural Property Relief (APR) and Business Property Relief (BPR),” commented Quilter tax and financial planning expert, Rachael Griffin.

“These reliefs, which currently allow farms and family businesses to be passed down without incurring prohibitive tax liabilities, might be scaled back. Labour might opt to remove APR for those who do not actually own farmland and BPR where it doesn’t meet the intention of the relief i.e. protecting small businesses being kept ‘in the family’.

“However, the unintended consequences could be huge especially for the AIM market which relies heavily on the shares being eligible for BPR after holding the shares for two years. This might therefore hamper Labour’s stated aim of getting more investment into UK plc.”

Griffin noted that, as Labour navigates these issues in the upcoming Budget, there was a “strong argument” for simplifying the IHT system and making it more appealing to gift during people’s lifetimes.

She highlighted that the current system’s complexity often led to confusion and inequities, with wealthier estates being better equipped to navigate and minimise tax liabilities.

“A simpler system could not only reduce administrative burdens for taxpayers and HMRC but also make the tax fairer,” Griffin continued.

“Increasing the gifting allowances also would encourage more wealth to cascade down the generations.

“Simplifying IHT could involve increasing the nil rate band, which has remained static for over a decade, or potentially lowering the headline IHT rate in exchange for eliminating or reducing complex reliefs. Such reforms could make the system fairer, particularly for middle-income families who increasingly find themselves liable for a tax originally intended for the very wealthy.

“As the debate on IHT reform continues, the upcoming budget will be crucial in determining whether Labour chooses to maintain the current complex reliefs or pivot towards a simpler, more equitable system that better reflects modern economic realities.”

Mazars partner, Paul Barham, stated that as IHT receipts continue to climb and tax-free thresholds remain frozen, IHT is “nipping at the heels” of families with modest estates.

“The new government’s autumn Budget may herald a change to IHT rules, but the devil will be in the detail, and without a crystal ball we don’t yet know what that will hold,” he continued.

“Families wary of the financial repercussions of any radical change should, as always, make use of the allowances available under the current system. The tax, seen as unpopular by many, could yet cause more pain for families across the UK in the longer-term.”

Just Group group communications director, Stephen Lowe, added: “Another month and another boost for the Treasury from IHT. But with the Autumn Statement in two months’ time, it seems inevitable that the Chancellor will at the very least run her slide rule over IHT to see if it’s a way to raise more revenue.

“The combination of frozen thresholds and property price rises are already driving a record IHT take, with receipts doubling compared to 2009 when the tax-free threshold was frozen. We will have to wait and see if Rachel Reeves decides that IHT can work even harder for the Treasury.”

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