IHT tax-take down as family home allowance takes effect
Revenue generated from inheritance tax (IHT) receipts in the six months from April to September 2019 was £2.4bn, a decrease of £316m compared to the same period last year, according to HMRC.
Alex Davies, chief executive of Wealth Club, said: “Whilst overall tax receipts rose by £12.2bn, perhaps surprisingly inheritance tax receipts fell by £316m. HMRC has not provided any commentary on why this might be the case.
“However, it stands to reason that we might be starting to see the impact of the residence nil-rate band, which became effective in 2017 to help people pass on their family home IHT-free. In practice, if you’re a homeowner, you could pass on as much as £475,000 free of IHT. For a couple, that’s £950,000.
“A further contributing factor might be the drop-in property prices in London and the South East which means the value of estates being inherited will be lower.”
Despite the fall, assuming the system and rates stays the same, the long-term trend for IHT receipts is likely to be upwards. The Office for Budget Responsibility predicts IHT receipts will reach £6.3bn by 2023-24.
“Of course, things might not stay the same. The current chancellor Sajid Javid recently hinted the Conservatives might be minded to abolish inheritance tax altogether – unlikely we think,” said Davies, “Meanwhile, Labour has praised policy suggestions from the Resolution Foundation which would replace IHT with a life-time receipts tax. One might wonder, though, if the government – whichever government we’ll end up having in the next six to 12 month – will make changing IHT a priority.”