A new HMRC report has revealed that inheritance tax receipts hit a record high of £5.2bn over the last financial year, increasing 8% (£388m) year-on-year during 2017/18.
The report, released ahead of an OTS review of inheritance tax (IHT) rules, found that the net value of estates has increased by £17bn to £79bn since 2009, while the number of estates liable for IHT has continued to climb, with factors such as rising property prices bringing more people into the regime.
The total number of liable estates has increased every year since 2009-10. In 2015-16 there were 24,500 liable estates, an increase of 1,300 since 2014-15.
While last year's 8% rise is less than the 22% increase seen from 2014-15 to 2015-16, receipts have been steadily climbing since 2010-11.
In 2015-16, 4.2% of UK deaths were liable to IHT, an increase of 0.3% since 2014-15. This has steadily increased since 2008-09 – something the Revenue puts down to the freezing of the nil rate band (NRB) at £325,000 since April 2009.
The report shows that London and the south east have the highest numbers of estates passing on death which are liable to IHT. In 2015-16, 51% of the total IHT liability was concentrated in these regions alone, with the average taxpayer in London clocking up a liability of £223,000 per estate.
The lowest IHT-paying regions were Northern Ireland, with an average of £127,000 per estate, and the North East of England at £132,000. The report partly attributed this to lower house prices and decreased population density, leading to a lower number of deaths.
Potential probate fee rise
Commenting on the figures James Hender, head of private wealth at Saffery Champness, raised a warning about the spectre of a rise in probate fees.
“Recent analysis by the Office for Budget Responsibility suggested that inheritance tax receipts in the last year - 17-18 - began with a significant uptick,” said Hender. “This was, according to the OBR, due to people looking to obtain probate (for which the payment of IHT a precondition) in advance of a proposed hefty rise in probate fees.
“While the proposed probate fee increase never materialised, the ripple effect may still be seen in future IHT receipt announcements. Going forward, the plans for increased probate fees cannot be ruled out as all government departments are looking for new ways to raise funds.
“At the same time we are awaiting an update from the Office of Tax Simplification on possible reforms to the inheritance tax regime – so change may be coming. Apathy can be a real issue with regard to wills and legacies, and taxpayers should be looking to ensure their wills are up-to-date and that they, and their beneficiaries, are able to make the most of the reliefs that are available.”
In January this year, the Chancellor wrote to the Office of Tax Simplification (OTS) to commission a review of Inheritance Tax. This had the dual aims of checking that the system is fit for purpose and discussing proposals for simplification.
Charitable giving discount
This year also saw the highest number of estates claiming the 4% discount for charitable giving (2,020), saving a total of £350m. Although this was a rise of over £50m on the previous year, Hender pointed out that the number of estates claiming the discount still accounts for less than 10% of total liable estates.
“When Chancellor, George Osborne famously pledged to make legacy giving the new norm,” said Hender, “but this still has some way to go with many wills not updated after the new relief was introduced and taxpayers still often unclear as to the reliefs available to support giving.”