HMRC issues inheritance tax update as calls made to make system 'fairer'

The government has issued its latest update on how much money has been raised through inheritance tax amid calls for major reforms.

HM Revenue and Customs (HMRC) released the latest figures today, confirming that it has raked in more inheritance tax this year than ever before, with £7.5 billion raised from what is often called the "death tax". This is an increase of £400 million for HMRC in just one year.

Despite lots of debate before the Spring Budget around reducing or even scrapping inheritance tax, chancellor Jeremy Hunt has kept the threshold at which the property and capital of dead people is taxed frozen for another year. If this stealthy approach to taxing estates continues, the Institute for Fiscal Studies have said government revenues could double to £15 billion by 2032.

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It is worth remembering that the vast majority of Brits do not pay inheritance tax, which only kicks in on estates worth more than £325,000 with a wide range of exemptions on land, shares, and some pensions. Ultimately, this means that around five per cent of deaths result in a tax payment to HMRC - which takes 40 per cent of everything over that threshold.

Despite this, YouGov polling shows that the "death tax" is among the UK's most unpopular, with 56 per cent of Brits in favour of scrapping the tax on inheritance, although only five per cent of people end up paying it.

The IFS has said that a further £4 billion could be raised from the tax if loopholes to evade it were closed by the government. The IFS said: "These reliefs are most heavily used by the biggest estates.

"As a result, despite a headline tax rate of 40 per cent, the effective rate of inheritance tax paid peaks at 25 per cent for estates worth between £3 million and £7.5 million, before declining to just 17 per cent on estates worth £10 million or more."

David Sturrock, a senior research economist at the IFS, said. “Eliminating the special treatment given to some shares, capping reliefs for business and agricultural assets, and bringing pension pots into the scope of the tax would make the system fairer and raise revenues.”