The amount of inheritance tax raised during tax year 2020-21 has increased by 4% to £5.4bn, up £190m year on year, although the amount of money offset for charitable donations has declined over the same period
This reverses the fall seen last year, and means receipts have been broadly flat across the four years since the tax year 2017 to 2018. Receipts are below the peak seen in the tax year 2018-19 by £33m. The decline in tax take is due to the phased introduction of the residence nil-rate band (RNRB) tax-free threshold from April 2017.
A small proportion of annual deaths are liable for inheritance tax, with 3.7% (22,100) of UK deaths (592,000) resulting in a charge.
The combined value of agricultural and business property relief (APR, BPR) was £3.49bn in the tax year 2018-19. This was a fall of £44m (1.2%) compared to the tax year 2017-18.
The value of exempted transfers to qualifying charities also fell, from £2.8bn in the tax year 2017-18 to £1.7bn in the tax year 2018-19.
The residence nil-rate band threshold is set at £125,000 for the tax year 2018-19, a £25,000 increase on the previous tax year. The RNRB is being phased in over time until it reaches its £175,000 target in the tax year 2020-21. Any unused amount can be transferred to a spouse or civil partner. This means that some couples have an effective RNRB threshold of £250,000 in the tax year 2018-19, a £50,000 rise on the tax year 2017-18.
Mike Hodges, partner and head of the private wealth team at Saffery Champness, said: ‘Inheritance tax revenue has remained relatively steady during what was a very tumultuous time for the UK economy, when many other sources of government tax revenue were adversely affected. Since IHT is often paid between six to 12 months after death, the impact on tax receipts as a result of deaths during the pandemic is unlikely to have impacted these IHT figures.
‘With the number of estates paying UK inheritance tax falling yet again to 3.7%, the fact is that while IHT remains a deeply unpopular and divisive tax it affects a small proportion of the population, thanks to factors such as the increased band to cover a couple’s main residence up to a £1m. It is likely that the cries for reform will continue to grow louder amid the ongoing debate around wealth distribution and equality which has been exacerbated by the pandemic.’
There are strong calls for reform of the inheritance tax system particularly due to its increasing complexity following the reviews of the system by the Office for Tax Simplification and the All-Party Parliamentary Group.
