Statistics published today reveal that Inheritance Tax (IHT) receipts received by HMRC during 2018-19 were £5.4 billion, an increase of 3% (£166 million) on 2017-18. Receipts have been rising since 2009-10. A full commentary can be read here.

IHT is a tax on the estate (the property, money and possessions) of someone who’s
died. There’s normally no IHT to pay if either the value of the estate is below the
£325,000 tax-free threshold or the deceased leaves everything to their spouse or
civil partner, a charity or other relevant organisations.

Use of Exemptions and Reliefs

Table 12.2 shows use of exemptions and reliefs by estates requiring a grant of representation for which the net capital value of the estate lies above the Nil-Rate Band (NRB) (including transferable nil-rate band (TNRB) where this applies). The value of relief is equal to the total amount of each relief claimed against assets as opposed to the impact of that relief on an estate’s tax charge. Details of exemptions and reliefs are in the IHT account (IHT400) notes, pages 74-78.

In 2016-17, 50,900 estates had a net capital value above the NRB (and TNRB). The
largest exemption set against assets was for transfers between spouses and civil
partners, valued at £9.7 billion. This exemption was taken advantage of by around
two-fifths of estates above the NRB, but was worth around 70% of the total value of
reliefs and exemptions set against assets.

The second largest exemption set against assets was for transfers to qualifying charities, valued at £1.8 billion and used by 9,890 estates above the NRB in 2016-17. Between 2010-11 and 2015-16, both the number and value of exempted transfers to qualifying charities increased each year. However, in 2016-17, both the number and value of such exempted transfers fell. The precise cause of this fall is unknown. However, this recent reduction in charitable giving may have been influenced by the announcement of the introduction of a new tax-free allowance in 2015. This allowance, known as the Resident Nil Rate Band (RNRB), is an additional tax-free allowance for those who pass on their main residence to direct descendants. It was announced at the 2015 Summer Budget, and came into effect in April 2017. Research by the Behavioural Insights Team and the University of Bristol has suggested that the tax-free threshold is an important factor behind people’s decisions to leave charitable legacies. Therefore, the announcement of the RNRB may have disincentivised  charitable giving as a tax mitigation measure.

An estimated 2,020 estates passing on death in 2016-17 benefited from the reduced 36% IHT rate that is available for estates where at least 10% of the value of the estate (after deductions for liabilities, reliefs and exemptions other than the charity exemption) is left to qualifying charities. Estates passing on death in 2016-17 were able to reduce their tax liabilities by £36 million (down slightly from £39 million in 2015-16).