Govt’s IHT and CGT receipts forecast to rise to 2.2% of GDP in 50 years

The government’s inheritance tax (IHT) and capital gains tax (CGT) receipts are expected to rise from 1.4 per cent of GDP in 2030/31 to 2.2 per cent of GDP in 2075/76, according to the Office for Budget Responsibility (OBR).

Its Fiscal Risks and Sustainability Report assessed how changing demographics would influence rising IHT and CGT receipts, with the proportion of the population over 80 set to rise from 5 per cent in 2025 to 12 per cent in 2075.

In the OBR’s baseline scenario, this would result in IHT and CGT receipts rising to 2.2 per cent of GDP in 50 years’ time.

The scenario also includes an assumption that large historical wealth gains of people currently at retirement ages would drive a ‘cohort effect’ in IHT receipts that will rise to approximately 0.2 per cent of GDP by the 2040s.

In an alternative scenario, whereby wealth growth outpaces growth in GDP over the whole projection period alongside the cohort effect, IHT and CGT receipts could increase to 2.7 per cent of GDP by 2075/76.

"The OBR's latest report demonstrates how demographic changes in the UK are likely to accelerate wealth transfer over the coming years and drive increases in IHT and CGT,” commented Utmost head of UK technical services, Simon Martin.

“Treasury receipts from these taxes have already increased significantly of late driven by recent reforms alongside the ongoing freeze to thresholds and rising property values.

“The OBR notes the specific fiscal impact also arising from wealthier cohorts – particularly the ‘baby boomer’ generation – beginning to reach the end of their lives.

“With significant value tied up in property, which has seen strong growth over recent decades, this transfer of wealth is likely to trigger a growing proportion of tax liabilities.

“The projections underline the immense value of financial advice and the growing role that the industry is likely to play in supporting legacy planning over the coming decades.”

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