The amount of inheritance and stamp-duty tax paid surged to an all-time high in the past month, a gold rush which would ideally allow chancellor of the exchequer, Rishi Sunak, to provide more support to households trying to combat rising levels of inflation.
According to HMRC data, inheritance tax receipts set a new record for the past financial year, hitting £5.5bn. The previous peak was £5.4bn, set back in 2018/9.
Stamp duty also had a strong year, with receipts totalling £16.9bn, up £6.1bn over the year and ahead of the 2017/8 high of £16.4bn.
Income tax and National Insurance receipts also grew, driven by the 4.8% increase in people returning to the workforce post-Covid.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, called this a “bumper year for HMRC” but added that there was a dark side to the data.
She said that while it was “hugely positive” to see people returning to work “this data shows the heavy toll the pandemic has laid on society with inheritance tax receipts hitting all-time highs” which was mainly driven by a spike in “wealth transfers throughout the year”.
Morrissey said: “While we hope the number of transfers will drop as the pandemic claims fewer lives, we will still see more estates become liable over the coming years as the freezing of inheritance tax thresholds continues.”
Laith Khalaf, head of investment analysis at AJ Bell, said in an ideal world this “budget windfall” could be fed through to tax payer via the upcoming Spring Statement and “open up some fiscal space for the chancellor to provide UK households with some help to manage the rising cost of living”.
Inflation has risen to 5.5% in the UK, with energy and gas prices one of the main drivers for this increase. Repeated calls have been made to the government to provide more support to households to manage these rising costs.
But it is not that simple. The government’s levels of borrowing is below the Office for Budget Responsibility’s (OBR) forecast by £35.9bn, just half what it was this time last year.
Although the government’s borrowing was down, the costs to manage it has “rocketed” from £37.5bn to £67bn, scaling back the “size of the windfall Sunak has to play with for the forthcoming Spring Statement”, Khalaf said.
“Inflation giveth, and inflation taketh away,” he said.
Part of the reason for these costs were the higher coupons being paid on the £500bn of inflation-linked gilts the government has issued.
“That effectively means that around half the money the government is currently borrowing is being used to service its debt, which is a precarious position for any chancellor,” Khalaf said.
He added that the OBR is expected to push-up its inflation and interest rate forecasts, further elevating the costs for managing the government’s debt, “particularly seeing as £847bn of gilts are pegged to base rate by the QE programme.
“The chancellor is clearly under huge pressure to fork out to help out with the cost of living crisis, but record levels of borrowing, combined with rising interest rates, will probably temper his generosity,” Khalaf said.