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Inheritance tax take hits record £7.5bn after stealth raid by Hunt

Chancellor Jeremy Hunt
Jeremy Hunt misses annual borrowing target in a blow to tax cutting ambitions before election - MANDEL NGAN/AFP

Inheritance tax receipts surged to a record high last year following a stealth raid by Jeremy Hunt.

Data published by HM Revenue & Customs showed it received £7.5bn in inheritance tax (IHT) receipts in the financial year to the end of March, £400m above the same period last year.

Official forecasts suggest inheritance tax receipts could top £9.5bn before the end of the decade.

Mr Hunt has faced repeated calls to abolish inheritance tax, and the Tories are understood to have considered including a plan to scrap it in last year’s Autumn Statement before opting for National Insurance reductions instead.

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The amount raised from IHT has surged in the past few years after the Chancellor froze the threshold at which it is payable at £325,000 until 2028, preventing it from rising in line with inflation and forcing more families to pay.

It came as official figures showed that Jeremy Hunt has missed his annual borrowing target in a blow to the Chancellor’s ambition to cut taxes again before the election.

The deficit stood at £11.9bn last month, according to figures published by the Office for National Statistics (ONS).

This is higher than the £10bn predicted by economists and means the Government borrowed £120.7bn to plug the gap between tax receipts and public spending in the 2023-24 financial year.

It is also £6.6bn above the borrowing target set just a month ago by the Office for Budget Responsibility (OBR), the Government’s tax and spending watchdog.

Mr Hunt told the Telegraph last week that he would like to reduce National Insurance by another 2p before the next election, but only if the public finances allow.

Ruth Gregory, of Capital Economics, said the figures suggested this would not be possible.
She said: “If the Chancellor was hoping March’s figures would provide more scope for tax cuts at a fiscal event later this year, he will have been disappointed.

“Just based on the larger-than-expected budget deficit and the recent shift up in market interest rates, he may have even less fiscal ‘headroom’ (perhaps about £5bn) for tax cuts than the £8.9bn left over in March.”

The figures showed that overall tax receipts grew by 7.4pc to £750bn in the latest financial year as corporation tax receipts jumped by a fifth and income tax revenues and VAT also rose.

However, receipts from stamp duty fell amid turbulence in the housing market, while income tax paid by self-employed workers was also slightly down.

The figures also show the Government transferred almost £45bn to the Bank of England last year to cover losses on its bond buying programme. The Bank hoovered up around £900bn in debt during the financial crisis and pandemic, turning a profit as the returns on the gilts it bought outstripped the interest it paid to commercial banks on reserves.

However, this has turned into losses as the Bank has raised interest rates to 5.25pc in the wake of Russia’s invasion of Ukraine.

The Bank is also selling some of its bonds at steep losses as it actively winds down its balance sheet. The Bank currently estimates total net losses of £80bn to the taxpayer over the next decade.

While this does not affect annual borrowing, it does increase the UK’s debt pile, which now stands at 98.3pc of GDP. This is 2.6 percentage points higher than a year ago and remains at levels last seen in the early 1960s.

A Treasury spokesman said: “Debt increased in recent years because we rightly protected millions of jobs during Covid and paid half of people’s energy bills after Putin’s invasion of Ukraine sent bills skyrocketing.

“We can’t leave future generations to pick up the tab, so we must stick to the plan to get debt falling. And with inflation falling and wages rising, we have been able to cut National Insurance by a third, which shows our determination to end the double taxation of work”.