Revenues from Inheritance tax (IHT) receipts fell for the first time in a decade in 2019/20 in the UK, a point that could prompt another UK government U-turn, according to commentators.
According to government statistics, HMRC raked in £5.2 billion from IHT in 2019/20, down 4% (£223 million) compared to the previous tax year, partially thanks to the introduction of the main residence nil-rate band in 2017/18.
As a result, Tom Selby, senior analyst at AJ Bell, IHT could be in Chancellor Rishi Sunak's cross-hairs ahead of Autumn Budget, as the current UK chancellor looks for quick-fix solutions to help pay for the gargantuan covid-19 borrowing
It would be no surprise to see Osborne’s big IHT giveaway come under the microscope as his successor, Rishi Sunak, seeks ways to raise much-needed cash to pay for the nation’s eye watering covid-19 debts,” Tom Selby, AJ Bell
After a decade of rising IHT bills, the amount people paid in tax on death dropped £223m last year but despite this year-on-year fall, IHT charges still boosted the Treasury's coffers to the tune of £5.2bn in 2019/20.
"The primary reason for the recent decrease in both the proportion of people hit by IHT and the overall tax bill was the introduction of the main residence nil-rate band in 2017/18," said Selby, pictured left.
"This meant that, in addition to the main £325,000 per person IHT-free allowance, people could pass on their primary home to a ‘direct descendant' without paying tax on the first £100,000.
"This main residence nil-rate band has increased by £25,000 each year since 2017/18, reaching £175,000 at the start of the current tax year. It is due to rise in line with Consumer Prices Index (CPI) inflation from 2021/22 onwards."
Selby points that aim of the policy - announced with huge fanfare by former Chancellor George Osborne - was to allow family homes worth up to £1m to be inherited tax-free. This can be achieved by a couple combining their IHT allowances.
"However, given the parlous state of the nation's finances, it would be no surprise to see Osborne's big IHT giveaway come under the microscope as his successor, Rishi Sunak, seeks ways to raise much-needed cash to pay for the nation's eye watering covid-19 debts."
Tom Elliott, partner and head of London private clients at Crowe UK, disagrees, pointing that Sunak may even go in the opposite direction and scrap IHT altogether.
"Whilst 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," said Elliot
"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."
On the future of IHT Elliott's 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 [UK] 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."