91探花

There has been much speculation in the press over the past few months about potential reform to inheritance tax (IHT) reliefs, in particular whether Rachel Reeves could remove the reliefs for business and agricultural assets in order to raise tax revenues and plug the £22bn “black hole”. 

However, the relative amount raised by scrapping either of these reliefs is small. The total cost to the exchequer in 2023/24 for agricultural relief is estimated at just , and an estimated £1.3bn for business relief. Removing either of these reliefs could be detrimental to farmers and business owners all over the UK, whilst the total tax that could be raised may not be significant when compared to the “black hole”. 

However, one relief that has so far escaped much scrutiny is the residence nil rate band (RNRB). Introduced by George Osborne in 2017 to appease Tory voters whose houses had soared in value (surpassing the £325,000 nil rate band), the RNRB is an additional IHT allowance which can be claimed against the value of the main home where it is left to ‘direct descendants’. Interestingly, it was estimated to cost the exchequer £1.8bn in 2023/24, more than either business or agricultural relief. 

Where utilised in full, the relief is potentially worth £70,000 per individual or £140,000 for a couple. Many people in a position to claim the relief do not consider themselves to be wealthy, with the value of their estate being primarily attributable to the value of their home. 

The legislation surrounding the RNRB is long and complex, and taxpayers often struggle to understand whether they are entitled to the relief or not. It is not available to very wealthy taxpayers as the legislation applies a taper, which starts where an individual’s gross estate exceeds £2m and tapers the relief to nil where the estate value totals more than £2.35m. Additionally, the requirement to leave the property to ‘direct descendants’ means it is not available to people that do not have children (including adopted, fostered or step-children) or do not wish to leave assets to their ‘direct descendants’. 

At an estimated £1.8bn cost to the exchequer in 2023/24, the cost of this relief is significant enough to be on Rachel Reeves’ radar. Those who intend to claim the RNRB, despite potentially not feeling ‘wealthy’, must own relatively valuable properties, such that the value of their estate exceeds the nil rate band (£650,000 for a couple). Consequently, perhaps those individuals do not fit the definition of “working people” whom Labour claimed they would protect from tax rises during the election campaign. Politically, is this therefore something Rachel Reeves could get away with scrapping?