The residence nil-rate band introduced four years ago under former chancellor George Osborne has had a minimal impact on inheritance tax bills, a Freedom of Information Act request has revealed.
In an FOIA response to Quilter seen by Money Marketing, HM Revenue and Customs says £1.3bn was claimed on 6,730 estates last tax year.
This was down from £1.7bn over 11,300 estates in 2017/18.
The RNRB allows for an additional £150,000 worth of a family home to be left to a direct descendant of a deceased owner free of inheritance tax. It also comes on top of the £350,000 nil-rate band – the sum the deceased is able to pass on tax-free.
HMRC did not provide a specific year-on-year breakdown of figures and claims the 2015/16 tax year is its most recent complete tax year for which it holds available data for distribution.
Quilter tax and financial planning expert Rachael Griffin says the figures equate to more half of inheritance taxpayers still paying tax despite claiming the RNRB.
She says: “The number of estates that paid inheritance tax in 2016/17 was 25,000 and dropped to 21,000 in 2017/18 and is provisionally set for 22,000 in 2018/19. While the Treasury said it expected the number of estates paying inheritance to half by 2020 thanks to the family home allowance, that looks far from the case.
“The figures from the FOI show that 6,730 estates are currently claiming the allowance but still have to pay tax, these are likely to be the estates that will benefit from the increase in the threshold.
“Even if you factor in that all those that are claiming the RNRB but still have to pay tax, those likely to benefit from the increase in the threshold you still won’t get to half of the estates by 2020.”
Ahead of the Office for Tax Simplification’s review of inheritance tax, Griffin says a tough stance should be taken to reduce complexities around the RNRB.
She says: “Between intricate rules on who is considered a family member, the downsizing provision and the possibility to use it on second homes, this tax relief is essentially a puzzle.”
Griffin called on the Treasury to redefine its definition of ‘direct’ descendants last August in an open letter.
In a response, the Treasury said the current form of the nil-rate band and RNRB “strikes the appropriate balance” between benefiting families and stabilising public finances.