Following the publication of HMRC’s annual inheritance tax statistics today, MHA MacIntyre Hudson tax partner Nigel May argues that inheritance tax (IHT) is unfit for purpose and requires urgent reform.
“The figures released today reveal how unimportant inheritance tax is in terms of the government’s overall tax receipts; it is dwarfed by income tax, national insurance contributions and VAT,” May said.
“In addition to the low yield, inheritance tax is hideously complicated and iniquitous. This situation has worsened in recent years with the introduction of new rules on the indirect ownership of UK residential property.”
HMRC’s statistics revealed that during the 2015/16 period, 4.2% of UK deaths were liable to IHT, increasing marginally by 0.3% compared to the 2014/15 period. In its report, the revenue said that this growth continues the longer term increase since 2008/09 and is partly due to the freezing of the Nil Rate Band (NRB) at £325,000 since April 2009.
IHT receipts have increased on average by 10% year-on-year since 2009/10, and this is in part caused by the rising value of assets and the NRB freeze. Between the 2014/15 and 2015/16 periods, there was a 22% increase in receipts, reflecting an estimated 43,900 excess winter deaths in 2014/15. However, as it is compulsory for IHT to be paid by the end of the sixth month following a persons’ death, the impact of these additional deaths and subsequent IHT received by HMRC was not felt until the 2015/16 period.
The total worth of IHT receipts received during the 2017/18 period was £5.2bn; representing an 8% (£388m) increase compared to 2016/17, and has been on the rise since 2010/11.
The net capital value of estates, since 2009/10, has increased by £17bn to £79bn in 2015/16, and around 54% of this increase is in residential property. Furthermore, the number of estates liable to IHT increased by 1,300 between the 2014/15 and 2015/16 period, rising to 24,500.
May further stated: “To combat some of this unfairness, inheritance tax is liable to a form of relief known as the main residence nil band rate, designed to ease the burden on estates worth more than £650,000, but tapering away for estates worth more than £2 million. If a specific tax relief has to be introduced to cater for such a small group of individuals, the tax itself is likely badly designed.
“Perhaps the Office of Tax Simplification’s review of inheritance tax, due to be published this autumn, will make moves to address these issues. We’re not hopeful though, as the call for evidence, which closed in June 2018, focused on administrative questions rather than encouraging proposals to address the deep seated issues with this tax.”
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