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Rising house prices help boost HMRC’s tax take

Rising house prices boosted HMRC’s coffers during the previous tax year.

Analysts suggest the booming housing market has meant HMRC has attracted more funds from stamp duty payments as well as more grimly from increased inheritance tax receipts during the pandemic.

The latest HMRC data for April 2021 to March 2022 shows total provisional tax receipts for the period rose by £133,8bn to £718.2bn – up 22.9%.

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Stamp duty receipts hit an all-time hight of £18.6bn, up £6.1bn on a year before.

Inheritance tax receipts for April 2021 to March 2022 were £6.1bn, which is £0.7bn higher than in the same period a year earlier.

Other receipts included money from PAYE Income Tax and national insurance, which rose by £34.8bn to £338bn.

Rosie Hooper, chartered financial planner at Quilter ,warns that more estates are being dragged into paying inheritance tax due to the frozen threshold of £325,000 after which an estate may have to pay the levy.

She says: “A key contributor to the increase in IHT receipts is the housing market which increased relentlessly over the same period, in which stamp duty holidays drove the UK to a record high average house price.

"With thresholds frozen, the increase in IHT revenue is viewed as a stealth tax, as more and more people are dragged into the IHT net following the sale of their homes. 

“This tax year, you can pass on £175,000 of your property tax-free through the residential nil rate band (RNRB) which is effectively doubled to £350,000 when combined with the allowance of your spouse or civil partner. 

“That’s layered on top of your inheritance tax allowance – or nil rate band – of £325,000, meaning it is possible to pass on £1m inheritance free as a couple. However, the RNRB only works for those with direct descendants to inherit the family home, while the UK’s 6m cohabitees are less fortunate and cannot claim the combined allowances.”
 

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, says the IHT receipts are a “heart-breaking reminder of the pandemic” but also questions how long the booming housing market and tax take will last.

She adds: “As we emerge from the pandemic, we face difficult times ahead as the cost of living starts to bite.

“The property market has thrived in the past year as buyers took advantage of stamp duty holidays to bag themselves a new home. 

“But with costs on the rise, it’s uncertain how long the market can sustain this momentum and we could see a quieter year ahead. 

“Workers will also be bracing themselves for the 1.25 percentage point rise in national insurance which began in April – a further cost increase impacting already squeezed budgets.”

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