The amount of money raised from inheritance taxes fell for the first time in a decade last year, new figures from HM Revenue and Customs show.
The cash received from the death tax fell in the tax year 2019-20 £ 223 million, or 4 percent, but the costs still strengthened the Treasury’s treasury by £ 5.2 billion.
With the government’s leave arrangement alone costing more than £ 30 billion, Chancellor Rishi Sunak could get an IHT walk in his sights later in the year.
The introduction of the zero-stay rate in the 2017-18 tax year was the main reason why IHT earnings and the number of people who paid the tax fell last year, HMRC said, with the changes taking time to fully filter through.
What does he intend to do? Chancellor Rishi Sunak may have inheritance rights in his sights this year
Inheritance tax: income and the proportion of people who have received inheritance tax over time
No changes in the tax were announced in the Chancellor’s budget or in the summer statement.
But this year’s explosion in public spending and loans may force the Chancellor to make radical economic decisions, possibly including tax hikes, to help Britain’s financial recovery in the years to come as Covid-19 pandemic subsides.
Tom Selby, analyst at AJ Bell, said: “Given the poor state of the country’s finances, it would come as no surprise to take a closer look at Osborne’s great IHT giveaway as his successor, Rishi Sunak, is looking for ways to collect much needed cash to pay for the nation’s dazzling COVID-19 debts. ‘
As last year’s inheritance tax income declines, Mike Hodges, a partner at Saffery Champness, thinks the numbers may “ increase the perception that some of whom some say can afford to pay a little more tax, their fair do not have to wear part ‘.
Mr. Hodges added: “And the proportion of estates paid by IHT is likely to decline further in the current fiscal year as the zero rate of residence increases to £ 175,000 per person, in line with George Osborne’s ambition for parents to pay a pound can leave 1 million property to their children tax free. ‘
UK-based people with a non-residence tax status, also known as ‘non-doms’, may become a specific target for the Chancellor if the inheritance taxes or rules are changed.
Mr. Hodges said: “Obviously, the Chancellor is looking for sources of income to spruce up the treasury of the government’s relief efforts, and his eye may be on non-doms, especially given the ongoing rumors of a wealth tax.
‘Non-doms are likely to be considered a safe target politically, but the chancellor should be careful not to throw the baby out with the bathwater, as non-doms are a major source of investment in the UK economy – something he hopes to continue post-Brexit. ‘
Sam McCann, a financial planner at NFU Mutual, said, “The government needs to reclaim some money to help pay for the coronavirus, and the inheritance taxes are ripe for reform, so Rishi Sunak could review it in an attempt to fill the gap in the national finances. ‘
HMRC said last year’s decline in IHT receipts was due to the introduction of the zero-tariff residency tire by former Chancellor George Osbourne in 2017.
The zero rate stay rate offers up to £ 175,000 off the value of a home, on top of the £ 325,000 which is already tax-free transferable.
Falling: The number of people who pay inheritance tax has fallen for the first time since 2009 last year
Tax revenues over time
2008-9: £ 2.84 billion
2009-10: £ 2.38 billion
2010-11: £ 2.72 billion
2011-12: £ 2.92 billion
2012-13: £ 3.15 billion
2013-14: £ 3.42 billion
2014-15: £ 3.83 billion
2015-16: £ 4.67 billion
2016-17: £ 4.84 billion
2017-18: £ 5.22 billion
2018-19: £ 5.38 billion
2019-20: £ 5.16 billion
Source: NFU Mutual
People managed to protect £ 3.1 billion in revenue from the introduction of the nil-rate bond for the main residence in 2017-18, HMRC said today.
The additional allowance allows individuals to pass up to £ 1 million tax-free to their loved ones.
Until 2007-08, total inheritance tax revenues had risen steadily, mainly due to increases in the asset valuation of things like houses before the financial crisis.
In the following years this trend took a downward turn, despite the fact that the total net capital value of the estates remained broadly unchanged at £ 62 billion between 2007-2008 and 2009-10.
Since 2009-10, the average amount of tax paid per estate has increased by an average of 3 percent annually, or £ 4,200, through 2014-15.
In 2015-16, the average amount of inheritance tax paid per estate decreased slightly by £ 2,000 to £ 179,000.
HMRC said, “This was due to a combination of those net estates worth between £ 1 and 2 million, which increased slightly while the total taxation on those estates remained the same.
“Average liability remained broadly the same in 2016-17, but increased 10 percent (£ 18,000) in 2017-18 to £ 197,000 in total.”
This week, the Office for National Statistics said that in 2017-18, 3.9 percent of all UK deaths, totaling 620,000, resulted in an IHT tax.
A tax expert thinks that the pandemic may lead to the abolition of IHT as a whole at some point in the future, especially if some form of wealth tax is on the cards.
Tom Elliot, a partner and head of London private clients at Crowe UK, said: ‘My personal view is that, if the Treasury is seriously considering an annual wealth tax, it would be the perfect opportunity to not only reform IHT but get rid of it it all.
Politically, the government would continue 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 if they are exempt from their current exposure to IHT. ‘
Mr Elliot added: ‘The total IHT paid in 2019/20 represented less than 1 percent of total UK taxation (£ 602.2 billion).
“IHT is more of a fiscal and political policy tool than a revenue-generating strategy. So few estates pay the tax that it would hardly be a loser if the rate were raised. In any case, such a proposal would be a politically positive step. ‘
Inheritance tax by gender and geography
Today’s figures from HMRC also provide a little deeper insight into the geographic and gender differences when it comes to inheritance taxes in the UK.
In the tax year 2017-18, a man’s estate had an average net worth of £ 1.2 million and a tax of £ 197,200. Meanwhile, an average estate for a woman had a lower net worth of £ 1.1 million, but a higher average tax rate of £ 198,500.
“In general, estates owned by women tend to have higher tax rates than men. This is probably due to the fact that women have a higher life expectancy at birth than men, ‘said HMRC.
Estates: The composition of estates for inheritance tax purposes in 2017-18
Trusts: The latest figures from HMRC revealed how trusts work in inheritance tax
Geographically, with above-average house prices, people in London and the Southeast were hit the most with inheritance tax in the tax year 2017-18.
In 2017-18, 54 percent of the total amount of inheritance tax charged in England was concentrated only in these regions, with the average taxpayer in London charging £ 245,400.
London and the Southeast are responsible for 45 percent of all inheritance taxes even today, HMRC said.
In 2017-18, on the other hand, the lowest IHT-paying regions had average costs of £ 133,500 in Wales, £ 146,800 in the North East and £ 152,200 in Northern Ireland.
“This may have been attributed to lower house prices in those regions,” said HMRC.
How does inheritance tax work?
If you’re queuing for a big inheritance, you may also have to consider a significant tax bill.
IHT was originally designed as a levy on the very affluent but triple real estate inflation since the 1980s has drawn more ordinary families in expensive areas to the net.
Only 5 percent of people leave estates large enough to hold their beneficiaries liable for inheritance taxes.
However, the real estate boom of recent decades means that this figure is expected to rise, with the heirs in house price hotspots bearing the greatest financial burden.
In essence, you should be worth £ 325,000 if you are single, or £ 650,000 jointly if you are married or in a civil partnership so that your loved ones have to take on the death duties.
But with a new private housing allowance – known as the zero-rate residence allowance – you can pass on more.
If you have a partner, own a property and plan to leave money to your immediate descendants, the threshold is now a combined £ 1 million.
If you are worth more, your heirs will have to donate 40 percent of your assets above that level to the government.
10 ways to avoid inheritance tax: Read more here.
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