Income tax and National Insurance contributions (NICs) have continued to rise, even as NIC rates were cut earlier this year.
From April to June 2024, PAYE income tax and NICs generated £195.1 billion, an increase of £4.7bn from the same period in 2023. This growth occurred despite a reduction in NICs, which saw rates drop from 12% to 8%. The decrease in NICs was offset by higher income tax receipts, which rose by over £4bn, and a steady increase in inheritance tax revenues. The total income tax taken for June alone reached £19.2bn, almost £800 million more than June 2023.
Corporation tax has also played a significant role in the rising tax revenues. The increase to a 25% rate contributed to a quarterly total of £20.5bn, up by £1.7bn compared to last year. The continued freeze in tax thresholds has pulled more taxpayers into higher tax bands, further boosting income tax collections. This threshold freeze, extending until 2028, means more taxpayers will gradually find themselves in higher tax brackets, intensifying the overall tax burden.
Inheritance and property taxes
Inheritance tax continues to climb, with receipts from April to June 2024 reaching £2.1bn, £83m more than the same period in 2023. This increase is partly due to the ageing baby boomer generation transferring wealth to younger generations, a trend expected to continue and potentially yield significant revenue for the Government.
The Office for Budget Responsibility forecasts that inheritance tax could bring in almost £9bn annually by 2028. The number of estates paying inheritance tax is also set to rise, reaching 6.3% of all estates by 2028, the highest level since the 1970s.
Property tax, specifically stamp duty land tax (SDLT), also saw an increase, with over £1bn collected in June. However, there are concerns about potential impacts on the housing market, particularly with the upcoming expiration of the temporary SDLT relief for first-time buyers in April 2025.
This relief currently applies to properties priced up to £425,000, and its removal could lead to a significant increase in tax for new homebuyers. Experts warn that without action, buyers could face additional upfront costs, potentially distorting the property market as the deadline approaches.
The overall tax landscape shows a complex picture. While NICs have decreased, other taxes such as income tax, corporation tax, and inheritance tax have seen significant increases. These trends highlight the Government’s reliance on a broad base of tax revenues, even as specific tax rates are adjusted. The continuation of frozen tax thresholds and the potential for further policy changes in areas like capital gains tax and inheritance tax will likely shape the fiscal environment in the coming years.
The interplay of these factors underscores the delicate balance the Government must maintain between stimulating economic growth and ensuring sufficient public revenue.
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