Inheritance tax (IHT) receipts fell for the first time in a decade in the 2019/20 tax year, new Treasury figures have revealed.

Data showed that HMRC raked in £5.2bn from IHT receipts in 2019/20, a figure reflecting a 4% drop worth £223m in comparison to the previous tax year.

The 2017/18 tax year was the first time in which the residence nil-rate band (RNRB) tax-free threshold could be used, which provides an additional allowance to qualifying estates so that more wealth can be passed on to direct a descendent before IHT must be paid.

Due to the long periods of time between the tax charge being created and HMRC receiving the tax payment, HMRC stated that the the effect on receipts from the RNRB’s introduction was felt in 2019/20.

In the year the RNRB was introduced, 20,200 estates used the threshold, and £3.1bn of chargeable estate value was sheltered from an IHT charge as a result.

“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,” AJ Bell senior analyst, Tom Selby, commented.

“This main RNRB 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.

“The 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.”

Hargreaves Lansdown personal finance analyst, Sarah Coles, added: “The RNBR has very little impact on the amount of IHT paid overall, because so much of the tax is collected from larger estates – for whom £100,000 is small potatoes. These large estates also start to lose this relief as soon as their estate is over £2m, so the very biggest taxpayers don’t get the relief at all.

“But you don’t have to be enormously wealthy for your family to pay over the odds after you’ve gone. There are steps we should all be taking to take advantage of the reliefs while we can, to protect our loved ones from a needless tax bill later.”

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