2017-18 Inheritance Tax statistics released: our partners respond

2017-18 Inheritance Tax statistics released: our partners respond

30/07/2020
2017-18 Inheritance Tax statistics released: our partners respond

Inheritance Tax (IHT) statistics released by HMRC today show: 

  • HMRC received £5.2 billion IHT tax receipts during 2019-20, a decrease for the first time since 2009-10 
  • 3.9% of UK deaths resulted in an IHT charge in 2017-18, a 0.7% decrease from 2016-17 figures
  • 24,200 UK deaths resulted in an IHT charge during 2017-18, a 14% decrease from 2016-17 figures.

Our partners share their thoughts on today’s statistics:

tom elliott

Whille Inheritance Tax (IHT) has generated more than £5bn in each of the last three tax years, it remains a very small part of the total revenue collected by HMRC. 

To be more specific, the total IHT paid in 2019/20 (at £5.125bn) represented less than 1% of the total tax take for the UK (£602.155bn). That is not to say that a figure of £5bn wouldn’t be missed but in the grand scheme of things, this is a tax that receives more attention than, for example, income tax, which generates £194.273bn in revenue, National insurance (143.050bn) and VAT (£130.149bn).

It must, therefore, be acknowledged that IHT is more of a policy tax and political tool than a revenue raising strategy. Indeed, so few estates pay the tax that it would hardly be a vote-loser if the rate was increased. If anything, such a proposal would be a politically positive step.

There has been much talk of possible reform to IHT but let’s not forget that the Chancellor’s predecessor Savid Javid went on record during at the Tory Party conference last year saying that he could consider scrapping the tax completely.

So what is the future of IHT? My personal view is that, if the Treasury is seriously considering an annual wealth tax, this would provide the perfect opportunity to not just reform IHT but do away with it completely. Politically, the Government would be seen to be continuing to tax wealthy estates, albeit in a different format and if a wealth tax is deemed necessary, it will be more acceptable to those exposed to it if they were to be excused from their current exposure to IHT.

tom elliott
Tom Elliott
Partner, Head of London Private Clients
Phil smithyes
Today’s HMRC stats show a reversal of the nine year trend of increasing receipts due to the residence nil rate band. Since 2010/11 ‘shrinkflation’ – whereby your favourite chocolate bars have stayed the same price but become smaller – has led to an increased number of estates paying IHT due to the tax free allowance remaining frozen. However for the first time since 2009/10, the total IHT receipts fell £223 million to £5.2 billion in 2019/20.
 
The statistics also show that in 2017/18 the total number of estates paying IHT dropped from 4.6% to 3.9%. The fall in total receipts suggests the number of estates paying IHT will continue to fall. The driving force behind the fall in IHT paid and the number of estates liable, is the Conservatives’ residential nil rate band. From 2020/21 onwards the allowance is due to increase to combat the effects of inflation. Whether the change in trend caused by the incremental increases made over the past three years will be lost when the allowance increases by CPI in future years, remains to be seen.
 
In the run up to the election, IHT was a talking point for both major parties; Labour wanting to reform it completely and the Conservatives even hinting at its abolition. In the context of the economic strain caused by Covid-19, with the government facing record-breaking deficits, changes to IHT that reduce the total take would mean larger increases in other areas.
 
The statistics show that whilst IHT raised £4.8bn in 2017/18, 78% of this – some £3.74bn – was paid by just 4% of estates so any reduction might be viewed as giving a tax break to the wealthiest members of society. The Chancellor is likely to have one eye on the optics of such a move for the electorate. 
 
The OTS review and all-party parliamentary group report on IHT both highlighted business relief and agricultural property relief as ripe for potential change. Their combined value in 2017/18 was £3.5bn, up £1.4bn from 2016/17. Following a Budget in which the Entrepreneurs' Relief lifetime limit was reduced from £10m to £1m, we should not rule out the introduction of some form of limit to IHT reliefs.
 
With pressure to raise taxes, and scrutiny of any fiscal decision, focussing on allowances and reliefs allows the government to increase the tax take without increasing the headline rates of tax – there may be a temptation for this approach to encompass IHT, too.
Phil smithyes
Richard Bull
Partner, Private Clients