Weekly Briefing: Record IHT, State Pension Tax, HMRC Penalties & Net Zero Boom

Read on for a look into some of this week’s major developments—from record inheritance tax receipts and potential tax on state pensions to stricter HMRC penalties and the rapid rise of the net zero sector—all shaping our economic landscape and affecting UK taxpayers. 

UK Tax

Inheritance Tax Set for a New Record

• Inheritance tax takings are on track to hit a new record by the end of the tax year, with HMRC data showing receipts between April 2024 and January 2025 reaching £7 billion—up by £700 million compared with the same period last year.
  
  
• Hargreaves Lansdown forecasts that government IHT receipts could surpass the £7.5 billion record of 2023/24, signaling an enduring upward trend.
  
  
• Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, warns that "the inheritance tax creep crawls ever higher," indicating that more families may soon find themselves liable for the tax.
  
  
• Looking ahead, from 2027 the Government will include pensions in IHT calculations—despite unchanged thresholds—likely increasing tax takings further.
  
  
• Experts such as Shaun Moore note that with the nil-rate band and residence nil-rate band frozen until 2030, rising house prices are dragging more families above the threshold, subjecting them to a 40% tax bill.
  
  
• "As more families find themselves above the threshold, proactive measures like asset gifting will become increasingly critical to manage tax liabilities," Morrissey explains.
  
  
• With thresholds and allowances frozen, and asset values and wages on the rise, more individuals—whether managing small or large estates—are facing higher inheritance tax liabilities. Reducing your IHT burden is increasingly critical, especially for larger estates. Fortunately, our comprehensive guide details several effective strategies to help you mitigate these tax costs.

State Pension Tax: A Looming Concern for Retirees

• New forecasts suggest that retirees might have to pay tax on their state pensions as early as next year if current trends continue.
  
  
• Deutsche Bank predicts that due to the triple lock, the full state pension could rise by 5.5% to reach £12,631 a year in April 2026—pushing it over the £12,570 tax-free personal allowance.
  
  
• Although this year’s state pension is set to increase modestly—to £11,973—robust wage growth, recently recorded at 5.9% over three months, may accelerate future rises.
  
  
• Analysts warn that this development would pull even those reliant solely on the state pension into the tax net, potentially imposing a financial burden on some of the most vulnerable retirees.
  
  
• "Taxing the state pension could impose an unwelcome burden on those who have never paid tax before, turning a long-held benefit into a complex administrative challenge," observes Alice Haine.

Stricter HMRC Penalties on Late Self-Assessment Returns

• HMRC data reveals that while 11.5 million tax returns were submitted by the January 31 deadline, an estimated 1.1 million missed the cutoff, exposing millions to fines.
  
  
• Late or unfiled returns will incur an automatic £100 penalty, with late payment interest set to jump to 4% above the Bank of England base rate from April— 8.75% if the base rate holds at 4.75%.
  
  
• This move, part of the revenue-raising measures from the October 2024 Autumn Budget, aims to encourage prompt payments, though it has been criticised as yet another “hidden tax rise.”
  
  
• Accountancy experts are pointing out the growing disparity between the steep rise in penalties and the unchanged repayment interest rate, leaving taxpayers feeling shortchanged.
  
  
• "If HMRC's tougher penalties lead to prolonged delays in processing refunds, taxpayers may face a double whammy—higher charges and extended financial uncertainty," warns Sian Marsden.

Net Zero Sector: Driving Growth and Green Transformation

• The net-zero economy is booming, growing 10% in 2024 and generating £83 billion in gross value added, according to analysis by the Confederation of British Industry (CBI).
  
  
• Comprising 22,000 businesses across sectors such as renewable energy, electric vehicles, and green finance, the net zero sector now employs nearly one million people, offering average annual wages of £43,000— that’s £5,600 above the national average.
  
  
• The report highlights that net zero businesses are not only fueling environmental progress but are also delivering substantial economic benefits, outpacing traditional sectors.
  
  
• High-profile voices, including Energy Secretary Ed Miliband and CBI chief economist Louise Hellem, argue that net zero initiatives are key to driving both economic growth and energy security, countering critics who claim otherwise.
  
  
• "The net zero economy is redefining the future—proving that environmental sustainability and robust economic growth are not mutually exclusive but are, in fact, mutually reinforcing," asserts Louise Hellem.
  
  
• In contrast to this, Ross Clark of The Spectator questions the extent of the net zero jobs boom, arguing that the numbers rely on opaque definitions and selective data. He highlights that the reported figures include jobs from companies that are not necessarily linked to net zero, such as those managing landfill sites, operating the National Grid, or working in the nuclear industry—sectors that existed long before net zero targets were introduced.

Final Note

From record-breaking inheritance tax receipts and looming state pension tax shocks to tougher HMRC penalties and robust growth in the net zero sector, this week's developments underscore the UK's escalating tax trajectory. 

Yet, it's encouraging to see strong performance in key sectors—though some figures may need to be taken with a pinch of salt.

With GDP data set for release on March 28th, we'll soon gain further insights into the broader economic picture, and as ever, we’ll strive to keep you informed.