Inheritance tax take drops

Latest figures released by HMRC (found here) show that inheritance tax (IHT) receipts dropped in the 2019/20 tax year for the first time since 2009/10. The drop was c4% or around £220m.

HMRC’s commentary suggests that the reason for this drop is the impact of the introduction of the ‘residence nil-rate band’ (RNRB) – which, given the way that the RNRB has been introduced (phased increases of £25k over a 4 year period), the RNRB had not yet reached its maximum level in 2019/20 (being £150k per individual – not until 2020/21 did it reach the £175k maximum), but was already sizeable in 2019/20.

There are a few wider observations to take from these statistics:

  • The RNRB is a ‘head scratcher’ for the tax profession – how did we arrive at something so unwieldly? And now we see that it has produced such a negligible impact of the tax take. The future of the RNRB requires serious consideration, as the tax profession has voiced since it was announced.
  • The introduction of the RNRB sparked a lot of voices of disenchantment around the perceived assistance to the wealthy – the availability of the RNRB tapers away to nil for estates of a value that exceed £2m, consequently the higher-value estates have not impacted these statistics. It follows that it is relatively surprising that a reasonable sizeable increase to the nil-rate bands has only resulted in such a small reduction – given this, surely there is an argument for a higher nil-rate band (my preference would be a higher standard nil-rate band and the abolishment of the RNRB).
  • Clients are usually very surprised to her how low the IHT tax is as a proportion of overall tax take – less than 1% with receipts of c£5bn – the tax is emotive and used as a political and media ‘football’, however the IHT receipts don’t suggest that this is warranted. The fact that the IHT receipts represent such a low proportion of overall tax receipts, and given the relatively small proportion of the electorate that it impacts, it seems like an easy political win to implement measures to increase the receipts. This is, of course, expected in the next Budget.
  • The regime is too onerous for the relatively small benefit to the Exchequer – the IHT regime is surely far too administratively burdensome for HMRC to administer for the relatively small benefit. An argument for simplification of both the tax itself and how it is practically administered, which again, I expect relevant measures to be announced in the next Budget.

Steve Maggs, Tax Partner