Future reform of the inheritance tax regime cannot be ruled out, as receipts increase

30 July 2021

Commenting on the latest ONS inheritance tax statistics, Eugenia Campbell, tax director and inheritance tax specialist at RSM, said:

‘The increase of 4 per cent (£190m) in inheritance tax receipts in 2020/2021 takes the total tax take at £5.4bn and reverses the fall from last period - effectively showing a return to pre-pandemic levels. 

‘We’ve already seen an increase of £0.4 bn in April to June 2021 when compared to the same period last year and a similar increase was recorded in October and November 2020 and March 2021, so the upward trend as we come out of the pandemic is continuing.

‘However, a full analysis, and in particular the impact of the COVID-19 pandemic, is not yet available, as there tends to be a two-year time lag for the administrative data to become available. HMRC believe that this increase is possibly due to higher volume of wealth being transferred during the pandemic. Most likely this is a consequence of a failed Potential Exempt Transfer (PET) or end of life tax planning; the operation of the will; or as a result of intestacy.

‘Interestingly, there was a fall in the number of deaths resulting in an IHT charge in 2018/19, which could be due to the phased introduction of the residence nil rate band; and there was an increased use of Business Property Relief (BPR) by £310m; and the value claimed against unquoted shares is now equal to the peak of the 2014 to 2015 tax year. However, to counter this there was a fall of similar value of Agricultural Property Relief (APR).

‘For chargeable estates valued at less than £1m or owned by those aged under 65 years in the 2018/19 period, the majority of the asset value is made up residential property. There is a more even balance of assets in the composition of estates valued at more than £1m and those aged over 65 years and for which the asset make up provides more opportunities to claim APR and BPR.   

‘Estates worth more than £1m accounted for 81 per cent of the tax liability created in 2018-19, but estates valued at less than £1 m accounted for 96 per cent of those requiring a grant of representation, suggesting a higher administrative burden for less valuable estates and supports the IHT administrative changes proposed by the Office of Tax Simplification which are being implemented.      

‘In addition, male owned estates had a marginally higher average, net capital value (£1.2m) than female owned estates (£1.1m) for the same period, but the female estates had a higher slightly tax liability of £212m versus £203m. HMRC suggests that this is explained by a higher life expectancy at birth for females who potentially outlive their spouses and are less able to use the spouse exemption.

‘Overall, the total tax take from IHT is relatively small compared to other taxes - £88bn in just three months to June 2021 for income tax, capital gains tax, national insurance and the apprentice levy - but it is steadily increasing. Given the state of the Government’s finances some reform of the IHT regime to increase the tax take further cannot be completely discounted and as previous reviews by the Office of Tax Simplification suggest this has not been removed from the agenda.’