The higher number of deaths caused by the Covid-19 pandemic have caused inheritance tax to rise to more than £5 billion in 2020-21, according to a recent article on Today’s Wills and Probate.
The £5.3 billion is close to the peak of 2018/19, when it reached £5.4 billion, though it dropped again afterwards because of the rise in the residence nil rate band and perhaps because people had rushed through probate the year before because they were concerned that higher probate fees might be coming.
While Covid-19 has contributed to taxes in this way, in other areas taxes have fallen for the first time since the global financial crash of 2008-2010.
VAT, stamp duty and fuel duty drops
In 2020/21, tax receipts dropped 7.8 percent or £49.1 billion from the previous year to £584.3 billion. Income tax and capital gains tax rose far slower than expected, while VAT, stamp duty and fuel duty all fell. Alcohol duty and inheritance tax are the only two to buck the trend.
For the third year running, stamp duty dropped, partly as the Chancellor Rishi Sunak allowed first-time buyer’s relief, although this peaked at the end of the tax year, with March witnessing record stamp duty receipts, the highest monthly figure since the introduction of the tax in 2003 as people rushed to buy and sell ahead of the stamp duty holiday deadline.
Speaking to Today’s Will and Probate, Sarah Coles, personal finance analyst at Hargreaves Lansdown, said the Treasury had taken some £50 billion less in tax because so much of the country had been closed for large periods of time in 2020/21.
Home drinking keeps alcohol duty buoyant
While the pubs had been closed, she added, people had been drinking much more at home, meaning that alcohol duty stayed up, and the higher number of deaths brought in more estates that owed inheritance tax.
She warned that higher taxes and less spending were likely to result as the Treasury would need to fill its coffers, come the end of the pandemic, and that people should consider ISAs and making the most of their pension contributions.
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