The charts below show inheritance tax receipts in both cash terms and as a share of national income (GDP), along with our March 2021 Economic and fiscal outlook (EFO).central forecast
Receipts measured in cash terms are a simple metric for analysing trends over time. But without putting the cash amount into context – by asking how much national income is available to be taxed – interpreting changes in cash receipts is difficult, particularly over long time periods.
Trends in receipts as a share of GDP are useful to understand how they move in line with the underlying economic activity that is being taxed. In cash terms, both receipts and GDP will tend to rise over time because of economic growth and inflation. Receipts as a share of GDP is the most relevant metric when considering the sustainability of the public finances. Movements in this ratio can be thought of in two parts – movements in the tax base relative to national income (i.e. whether asset prices have grown faster or slower than the whole economy) and changes in the effective tax rate (i.e. the amount of tax raised per unit of the tax base).
IHT receipts have increased as a share of GDP since 2009-10, mainly due to rises in asset prices. Residential property makes up the largest share of most estates and average house prices have risen by more than 40 per cent in that period. The rise also reflects significant fiscal drag as the IHT threshold has remained at £325,000 since 2009.
The monthly profile of IHT receipts is usually spread evenly throughout the year. They reflect asset prices with a lag of around 6-12 months, as payment is not required until some months after the liable death. There is often a lumpy profile across the months, which can reflect large payments by high value individual estates or trusts.
In addition, as a result of the effects of coronavirus and the measures taken to control it, the monthly profile of receipts in 2020-21 in particular has been different to that seen in previous years.
Inheritance tax receipts: ONS (ID: ACCH)
More detail can be found in paragraph 3.48 of our March EFO.
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