HMRC’s latest tax receipt figures show a sharp improvement compared to this time last year with inheritance tax (IHT) rising by £500m after the nil-rate freeze in the Spring Budget
UK public finance data released this morning shows a sharp improvement compared to where the government’s finances were a year ago.
HMRC collected £226.3bn in tax between April to July 2021 which is £76bn higher than the same period last year although HMRC has stated that last year’s figures are not representative as they were heavily impacted by the Covid-19 pandemic.
This year’s figures were affected mainly by the deferred payments under the VAT payment deferment policy.
The inheritance tax statistics showed that the government continues to collect more from the tax each year. Inheritance tax receipts for April to July 2021 sat at £2.1bn, £500m higher than the same period a year earlier. Inheritance tax is currently a hot topic as rumours continue to circulate as to whether the Chancellor, Rishi Sunak will consider changes to IHT in order to raise more funds after a turbulent 18 months.
HMRC has indicated that the higher receipts are due to the higher volume of wealth transfers that have taken place during the Covid-19 pandemic.
Commenting on the ongoing increase of IHT receipts, Ketan Patel, vice president of wealth planning, Kingswood, said: ‘Inheritance tax receipts have reached £2.1bn between April 2021 and July 2021, representing a 31% increase from the same period last year.
‘These sobering statistics, coupled with rising property and asset valuations, mean IHT receipts are likely to continue increasing. The fact that the nil rate band and residence nil rate band are currently frozen until April 2026, referred to as a stealth tax, is likely to compound the issue.
‘There is also a concern that both inheritance tax and capital gains tax rates could increase in the post-pandemic era as the government considers options for increasing tax revenue.’
The cash receipts were also higher for income tax, capital gains tax (CGT), national insurance contributions (NIC), and the apprenticeship levy rising by 22% to £125.7bn. This is £22.7bn higher than last year’s figure. Much of the improvement came from higher self-assessed income tax receipts, which improved by £3.7bn, or 76%.
Median monthly pay also increased by 7.5% compared to the same period last year. This represents the second year-on-year growth in paid employees since March 2020.
Corporation tax rose by 27% reaching £17.7bn, which was £3.8bn more than last year, this figure also includes bank levy, bank surcharge, and diverted profits tax.
In this period, stamp taxes, which include annual tax enveloped dwellings (ATED), brought in a total of £5.7bn which is £2.2bn or 62% higher than last year. July 2021 represented the second-highest month for receipts from both stamp duty land tax (SDLT) and shares and the highest month for stamp duty land tax receipts alone.
This is down to the exceptionally high number of transactions following the residential stamp duty land tax holiday, with the tax-free rate falling to nil tax on the first £500,000 up to 30 June 2021, which was reduced to nil tax on the first £250,000 from 1 July.
There was a rise across the board in tax receipts from environmental taxes, which includes revenue from landfill tax, climate change levy, aggregates levy, and carbon price floor, bringing in £1.1bn which is 50% higher than last year.
Alcohol duty and tobacco duty both rose with alcohol duty bringing in £4.4bn and tobacco duty bringing in £3.6bn, both £500m higher than in the same period last year. Hydrocarbon oil fuel duty brought in £8.7bn which was a significant £2.9bn higher.
The only thing to reduce in this month’s tax receipt figures was air passenger duty (APD) which between April and July brought in £101m which is £37m lower than last year.
The total provisional APD for the financial year 2020-21 sat at £582m, which was an 84% lower at £3bn than the previous financial year due to the impact of the pandemic.
Air travel has continued to feel the effects of Covid-19 more than any other industry and has yet to make a comeback to its pre-pandemic levels.
Public sector net borrowing in July almost halved, to £10.4bn, although this is still the second worst July for borrowing levels since records began but the figures showed that both sides of the equation improved with public spending fell to £79.8bn.
Steve Clayton, select fund manager, Hargreaves Lansdown said: ‘These numbers could have been so much worse, but with the UK economy turning up, government finances are fast improving. This bodes well for the Chancellor’s flexibility going into the next Spending Review and makes it easier to keep the promise of no return to austerity.
‘But after the initial relief subsides, the stark truth remains; the pandemic played havoc with public finances and borrowing is way above anything that economists expected in late 2019. The Treasury will be keen to see debts brought down before the day interest rates eventually rise and servicing those trillions of debt becomes increasingly challenging.’
