Inheritance Tax 

IHT receipts drop 12 per cent

IHT receipts drop 12 per cent

Inheritance tax (IHT) receipts decreased by £64m last month, according to HM Revenue and Custom’s latest data.

HMRC data released today (May 22) showed in April 2019 IHT receipts accounted for £473m, down from £537m in March 2019, showing a decline of 12 per cent.

However, IHT paid in April 2019 was 11.2 per cent higher than in the same period last year.

HMRC could not give an explanation for the hike, saying: "March and April 2019 are particularly high though it is too early to determine the cause for this."

But Rachael Griffin, tax and financial planning expert at Quilter, said the tax take raised a question mark over the success of the residence nil rate band, which was supposed to bring IHT levels to where they were at in the 2014/15 tax year.

She said: "While the threshold will steadily increase over the next number of years, current signs are not encouraging.

"You would have thought the last two years would have reduced slightly due to this being introduced, but the growth rate has continued, completely unchanged.

"It can come down to a number of things though, including the fact that house prices might still be above the current residence nil rate band threshold or that people aren’t leaving their houses to blood relatives, which is an out of date restriction required to benefit from the RNRB."

The nil rate band, also known as the IHT threshold, is the amount up to which an estate has no IHT to pay. The NRB for 2019/20 is £325,000 and any estate which exceeds this threshold is charged 40 per cent in IHT.

Unused NRB and residence nil rate band can be transferred to a surviving spouse or civil partner.

The RNRB came into effect in 2017 and is an additional threshold available where the deceased left a residence, or the sale proceeds of a residence, to their direct descendants. The RNRB for 2019/20 is £150,000, an increase of £25,000 from 2018/19.

In 2018/19 IHT receipts totalled £5.4bn, up from £5.2bn (3 per cent) the previous tax year, with the amount of IHT collected by HMRC having continuously increased from 2009/10. 

IHT receipts hit a record high of £555m in May 2017 but continued to decrease thereafter until April 2018.

There was a sharp drop in IHT receipts from 2008/09 due to both the introduction of the transferable nil rate band for deaths occurring from October 2007 and a fall in the value of residential property in the second half of 2008 and in 2009.

A review of IHT rules is currently underway as the Chancellor is keen to simplify the underlying structure of the tax. The first report out last November recommended the government should move to a fully digital system for inheritance tax.

The second section, which will deal with the overall design of the system, is expected to be released in due course.

Ms Griffin said: "The Office for Tax Simplification is currently preparing a second paper as part of the IHT review which should cover the rules governing the residence nil rate band and this offers an ideal opportunity to fix this overly complicated outdated allowance.