IHT receipts peaked in August 2021 at about £570m. HMRC said that higher receipts in October 2020, November 2020, and March to August 2021 are expected to be due to higher volumes of wealth transfers that took place during the Covid-19 pandemic. However, HMRC said it can’t verify this until full data becomes available.

There were lower IHT receipts in April and May 2020 due to a temporary issue where HMRC was unable to accept cheques for payment of IHT due to Covid-19. This was later resolved, causing a peak in June 2020 receipts.

What is inheritance tax?

Everyone has an inheritance tax allowance. Essentially this means that if your estate is worth less than £325,000 when you die, then the taxman won’t take any of your estate.

You can pass your allowance onto your spouse when you die too, which means that couples effectively enjoy a £650,000 inheritance tax allowance. Your estate is then taxed at 40% for its value above this threshold.

There is an additional threshold to be aware of, thanks to the family home allowance. This allows you to pass on your main home to your loved ones after you die, without it being subject to inheritance tax. This additional threshold currently stands at £175,000, meaning some individuals can pass on £500,000 free of tax, while couples can pass on £1m.

Alongside this tax relief, there are also rules covering gifts that you can make from your estate before you die which will not incur inheritance tax.

Tax rises

Julia Rosenbloom, tax partner at Smith and Williamson, said: “The government continues to need to raise funds to pay for the costs of Covid-19 support schemes as well as reform commitments in other areas such as health and social care, while also dealing with the challenges posed by soaring energy costs. Ahead of next week’s Budget, chancellor Rishi Sunak will therefore be looking closely at all possible areas he can tap for additional revenue, not least from personal taxes such as IHT which have shown yet another uplift, to boost the Treasury’s spending power.

“Prime minister Boris Johnson’s recent announcement introducing a new health and social care levy, which broke a manifesto commitment, demonstrates that the government is not afraid of tax rises. Whether any reforms to taxes are announced next week or at a later date, the outlook as to how individuals and businesses will be taxed in the coming years is far from certain.”