Number of estates paying IHT jumps 13% – live action Laffer curve ahead?
HMRC has released its annual inheritance tax (IHT) stats for the 2022/23 tax year. Headlines include:
- Number of estates paying inheritance tax rose 13% to 31,500.
- The average IHT bill fell by 1.4% to £212,000.
- 0.03% (202) of estates paid 11% of all inheritance tax and 1% of estates paid around 65% of all inheritance tax.
- Just 4.6% of estates pay any inheritance tax at all.
Nicholas Hyett, investment manager at Wealth Club said: “Frozen inheritance tax allowances mean the number of estates paying inheritance tax continues to rise. This is no accident, the government is actively using inflation to squeeze more tax out of middle and upper-middle income families. The trend will have only gathered pace in the years since 2022/23.
Large estates continue to shoulder the overwhelming majority of the burden. Just 1% of estates paid around 65% of all inheritance tax in 2022/23 and the average bill for those estates valued at over £10m hit £3.6m. However, the increase in the number of small estates paying the tax means the average IHT bill fell slightly in 2022/23 to £212,000.
The argument that less than 1 in 20 estates pay IHT is wilfully misleading in our opinion, because that number is so heavily influenced by the fact transfers to spouses are free of inheritance tax. If one parent dies and leaves all their money to the surviving spouse, then there is no inheritance tax to pay on that estate. However, the estate could be liable for IHT when the second parent dies. In this scenario, HMRC would argue that 50% of estates are free of inheritance tax, but that’s clearly not how families would view the situation. The reality in this scenario is that 100% of families have been affected by inheritance tax.
Looking ahead these numbers show just how damaging an exodus of wealthy individuals could be to the UK tax base. IHT is particularly controversial for the wealthiest, most globally mobile taxpayers. Why stay in the UK and give up c. 40% of your wealth, when you can move overseas and cut the bill dramatically – it’s not like you don’t have the cash to visit the UK regularly to see friends and family.
The government is hoping its reforms will increase the effective tax rate paid by these highest earners going forwards, it might succeed, but it would be no surprise if that was offset by a decline in the number of people who are prepared to stick around and carry the can. These numbers are worth watching closely over the next few years – you might just see the much maligned Laffer curve in live action.”