Pandemic pushes inheritance tax and stamp duty on property to record highs
Sarah Coles, personal finance analyst at Hargreaves Lansdown, comments on the publication of ONS tax and National Insurance figures, showing inheritance tax and stamp duty at record highs.
Key points from statistics:
- The stamp duty holiday did its job of reinvigorating the property market after lockdown, and in the rush for the deadline, receipts from property purchases hit £1.309 billion in July, the highest month on record.
- This was higher than the £1.196 billion taken in March, the date when the holiday was originally due to come to an end.
- Meanwhile, a higher number of people dying with coronavirus at the start of the year meant we paid £571 million in inheritance tax in July. This is the most ever paid in a single month.
- Overall, the Treasury reached even deeper into our pockets in July, as total tax receipts hit £67.3 billion, the highest since January.
Sarah Coles said:
“The pandemic has pushed inheritance tax and stamp duty on property purchases to record highs in July. The horrible rise in deaths from coronavirus at the beginning of this year meant an increase in IHT as those estates finally made their way through probate. Meanwhile, the Treasury’s efforts to reinvigorate the property market after lockdown with a stamp duty holiday encouraged thousands of people to accelerate their house-buying plans, pushing stamp duty on property to record highs.”
Stamp duty:
“The stamp duty holiday tapered significantly at the end of June, which meant a home-buying frenzy. There were record sales in June, as 213,120 buyers raced to complete before the deadline. You have 14 days to pay stamp duty after completion, which is why so many receipts were held over to July.
“Stamp duty is a classic example of how cutting a tax can help change behaviour so dramatically that it boosts the Treasury’s coffers, as people brought sales forward to take advantage of the tax break. We see this every time there’s a change to stamp duty, and we’d usually expect the tax take to drop significantly below normal levels in the following months. However, there are some signs that record low mortgage rates have continued to support the market, so while we can expect this to be a high point, we’re not expecting it to plummet in the coming months.”
IHT:
“The record tax taken in July is likely to be a result of the horrible rise in deaths of people with Coronavirus earlier this year. There’s typically a long delay between when someone dies and when the tax is paid, which can take up to six months. It means that what we’re seeing now is a result of the tragically high death rate in early 2021.
“HMRC says it’s too early to say whether the higher death rate and higher tax take are linked, but given that the last peak in IHT was in October, six months after the first wave, we can see a possible link.
“Paying IHT comes at the worst possible time. Families are still reeling from bereavement when they have to go through the administrative nightmare of probate, and then work out how to pay the tax bill. The more you can plan for this tax in advance, the less pressure it will put on your family when the worst happens.
“You might, for example, give gifts during your lifetime. You have an annual gift allowance and can give gifts of any size, and as long as you live for seven years afterwards, they are counted as being out of your estate for IHT purposes. Alternatively, you could consider a whole of life policy written in trust, which will be paid outside of your estate and can be used to meet the cost of the tax.”
Kindly shared by Hargreaves Lansdown
Main photo courtesy of Pixabay
