Official Statistics

Non-structural tax relief statistics (December 2024)

Updated 5 December 2024

1. Summary

The key points from this year’s statistical publication are:

• the 107 non-structural tax reliefs for which we have estimates currently in the latest tax year (2023 to 2024) cost £207 billion

• the costs are broadly stable relative to last year, up £3 billion (1%) from £204 billion in the tax year 2022 to 2023. Tax receipts for the same year increased by 5.4% according to the OBR public finances databank, meaning these costed reliefs have decreased slightly as a share of receipts

• most of the total cost is driven by the largest 5 non-structural reliefs, which make up two thirds (£124 billion) of all costed non-structural reliefs

• half of the costed non-structural reliefs in this publication cost less than £10 million

• of the total 344 non-structural reliefs, HMRC have now investigated 333 (97%) of which 268 have a cost estimate in this publication

• for the vast majority of reliefs, year-on-year variations in costs tend to reflect changes in the underlying economic activity that drives them. As a result, most costs are stable from year to year (two thirds of reliefs vary by less than 10% on average in terms of their relative proportion of GDP each tax year)

All of the estimates in this publication reflect current Government policy at the time of costing. The latest year for which there are estimates is 2024 to 2025. Most of the announcements in the Autumn Budget 2024 take effect from April 2025 or later and so will not have impacted this year’s estimates. Our Capital Gains Tax (CGT) estimates have however been adjusted to reflect the change in the Main rates of CGT, which were effective from 30 October 2024.

2. About this publication

This publication provides the latest estimates of the costs of non-structural reliefs in the UK tax system. ‘Non-structural’ tax reliefs are designed to advance economic or social objectives.

Additional analysis is presented for the largest 38 non-structural reliefs known to cost over £500 million in any tax year. For these reliefs trends through time are discussed as well as relevant material on distributional impacts and evaluations.

For reliefs where the forecasted costs at announcement overlap with the publication period, the forecast costs are compared to the most recent cost estimates.

For a full list of non-structural reliefs and their associated cost (where available), see the accompanying statistical tables:

1. table 1: Estimated cost of non-structural tax reliefs
2. table 2: List of non-structural tax reliefs where cost estimates are unavailable

This bulletin does not cover ‘structural reliefs’. ‘Structural’ tax reliefs are integral parts of the tax system and have various purposes, such as to define the scope of the tax or calculate income or profits correctly. For more information on ‘structural’ reliefs, see the latest structural reliefs publication. For more information on the difference between structural and non-structural reliefs, see the accompanying quality and methodology information report. This report also provides further detail on the methodology used for this release.

The figures in this publication are estimates of the amount of relief which is claimed and subsequently granted each tax year in £ million. They do not represent the gain to the Exchequer should a relief be abolished and do not explicitly model additional behavioural responses and wider economic impacts which could result from changes to the reliefs, nor do they consider interactions with other reliefs.

2.1 Progress costing non-structural reliefs

Since 2019, HMRC has dedicated additional resources to costing previously uncosted tax reliefs, prioritising non-structural reliefs. The project started in 2019 and will run in 2 stages.

Stage 1 attempts to estimate costs for each non-structural tax relief based on the data currently available. As many reliefs are designed to minimise admin burdens, customers do not always have to inform HMRC that they are using them.

Where HMRC would need to collect or purchase additional data to cost a relief, it moves to stage 2. In stage 2, HMRC will consider further options available to cost these reliefs. These considerations will balance the costs of further data collection, admin burdens and the expected benefits of estimating a relief cost.

Table 1 provides the costing status of reliefs since October 2020. HMRC have now published costings for 268 reliefs, and a further 28 which cannot be disclosed. 11 reliefs are still to be reviewed as part of stage 1, and 37 reliefs have moved to stage 2.

Table 1: Relief costing status since October 2020 publication

Relief status	October 2020	December 2021	January 2023	December 2023	December 2024
Costs available	176	221	249	257	268
Of which single year	73	118	142	150	155
Of which multi year	103	103	107	107	113
Costs withheld, disclosive	11	26	27	28	28
Uncosted	148	86	64	57	48
Of which temporarily withdrawn due to data	0	0	0	4	0
Of which unable to cost	72	48	40	36	37
Of which yet to investigate	76	38	24	17	11
Total	335	333	340	342	344

2.2 What’s new?

The main update in this publication reflects updated estimates for 113 multi-year costings. These costings, descriptions, and objectives have been updated for:

• most multi-year costings have been rolled on to the 2024 to 2025 tax year

• the impact of new Government policy decisions since the last publication in December

• the costings have been updated for the latest administrative and external data, as well as new OBR economic determinants

We have also expanded our monitoring of the costs of tax reliefs with a new section comparing our tax relief cost forecasts against estimated outturn.

Since the May 2024 publication 2 new costings have been added to the publication. As of August 2023, Small Brewers Relief has been superseded by 2 new reliefs. The 2 new reliefs are Small Producer Relief and Draught Relief, detailed in table 2 below.

Table 2: New costings for previously uncosted non-structural tax reliefs

Relief name(s)	Tax head(s)	Costing type	Note
Small Producer Relief	Excise Duty	Multi-year	Small Producer Relief was introduced from August 2023. Claimant figures are not available.
Draught Relief	Excise Duty	Multi-year	Draught Relief was introduced from August 2023. Claimant figures are not available.

Due to a potential data issue, cost estimates for the following reliefs were removed from the December 2023 publication.

1. IT/NICs – Approved Company Share Options Plans (CSOP)
2. IT/NICs – Enterprise Management Incentives (EMI)
3. IT/NICs – Save As You Earn
4. IT/NICs – Share Incentive Plan (SIP)

The error did not impact tax liabilities or payments received by HMRC or penalties to customers. We are reviewing the robustness of data used to produce statistics for the period up to tax year ending 2021 and we have withdrawn estimates for the affected years. Estimates for the reliefs are therefore only included in this publication for the tax year ending 2022 and tax year ending 2023.

2.3 Developing and expanding commentary on the cost and impact of reliefs

Following recommendations from the Public Accounts Committee (PAC) in July 2020, HMRC has committed to ‘improving the available information about the groups and sectors benefitting from significant reliefs’, and to ‘identify and explain significant cost variances within reliefs’. HMRC has confirmed that it has satisfied PAC’s recommendations in the June 2022 Treasury Minutes progress report.

HMRC has continued to make progress in this area in this statistics publication this year by including:

1. links to and summaries of existing published analysis that may shed light on the distributional impacts and effectiveness of the most significant reliefs
2. summary statistics highlighting key trends and findings from across the relief costings

3. Headline statistics

3.1 Largest non-structural reliefs

In this commentary, we focus on the 2023 to 2024 tax year, which is mostly based on administrative and external data. Estimates for 2024 to 2025 are largely based on forecasts and are included in the detailed tables.

Estimates are available for 107 tax reliefs in the tax year 2023 to 2024, representing tax relief worth £207 billion.

In 2023 to 2024 the largest 5 non-structural reliefs in this publication account for around 60% of all non-structural tax reliefs covered in this publication:

• Capital Gains Tax: Private residence relief providing £31 billion of relief (up by £2.7 billion relative to 5 years earlier)
• Income Tax: Registered pension schemes providing £28.5 billion of relief (up by £5.8 billion relative to 5 years earlier)
• VAT: Food providing £25.1 billion of relief (up by £5.1 billion relative to 5 years earlier)
• NICs: Contributions to, and benefits from, registered pension schemes providing £23.5 billion of relief (up by £2.1 billion relative to 5 years earlier)
• VAT: Construction and sale of new dwellings (includes refunds to DIY builders) providing £16 billion of relief (no change relative to 5 years earlier)

In this section, we have grouped the following tax heads into a “Capital Taxes” category: Inheritance Tax, Capital Gains Tax, Stamp Duty Land Tax, Stamp Duty and Stamp Duty Reserve Tax.

Figure 1: the aggregate cost (£ billion) and number of non-structural reliefs with estimates available in the tax year 2023 to 2024 by tax head

Figure 1 shows that in the tax year 2023 to 2024 VAT had the highest cost of tax relief by tax head (£69 billion), followed by Capital Taxes (£43 billion) and Income Tax (£43 billion). Corporation Tax (£21 billion) and NICs (£28 billion) show the lowest tax relief cost. A full breakdown of the costs of individual reliefs is available in the estimated cost of non-structural tax reliefs table.

3.2 Change in the cost of non-structural reliefs over time

The cost of the 107 non-structural reliefs where 6-year estimates are available is £207 billion in the tax year 2023 to 2024. This is an increase of £3 billion (1%) from the tax year 2022 to 2023. Tax receipts for the same year increased by 5.4% according to the OBR public finances databank, meaning the cost of reliefs as a share of receipts has decreased.

Table 3 sets out how our relief estimates have changed in percentage terms between 2019 to 2020 and 2023 to 2024, grouped into broad categories of magnitude.

Table 3: changes in the outturn estimates for non-structural reliefs as a proportion of GDP from tax year 2019 to 2020 to tax year 2023 to 2024

Tax type	Reduced by more than 10%	Changed by less than 10%	Increased by more than 10%	Total
Income Tax	9	6	6	21
Capital taxes	7	1	10	18
Corporation Tax	5	2	11	18
VAT	6	6	5	17
Other	10	1	2	13
Multiple tax heads	3	0	2	5
NICs	0	1	3	4

Table 3 shows that Corporation Tax and NICs reliefs were more likely to have risen quickly over the past five years. In part, these increases reflect policy changes, such as the rise in the Main Rate of Corporation Tax from 19 to 25 per cent from April 2023.

Table 4: largest percentage changes in the cost of large reliefs in the period 2019 to 2020 to 2023 to 2024

Relief name	Cost change (%)
CT: High-End TV Tax Relief (£730 million increase)	155
IHT: Agricultural property relief (£335 million increase)	105
Multiple tax types: Individual Savings Accounts (£3.8 billion increase)	97
CT: Patent box (£1.1 billion increase)	92
IHT: Residence Nil Rate Band (£1.1 billion increase)	88
IHT: Transfers between Spouses and Civil Partners (£2.2 billion increase)	87
CT: Research and development tax relief: R&D Expenditure Credit (£1.9 billion increase)	70
IHT: Business property relief (£435 million increase)	64
VAT: Domestic fuel and power (£3.1 billion increase)	63
Multiple tax types: Employer Supported Childcare including workplace nurseries IT (£500 million decrease)	-67

Table 4 shows the top 10 non-structural reliefs with the largest percentage changes in cost over the last 5 years. The 5 year period covers the tax year 2019 to 2020 to the tax year 2023 to 2024. Corporation Tax relief for high-end TV production has had the largest percentage change over this time, increasing by 155% (£730 million). Tax relief for employer supported childcare including workplace nurseries has seen the largest percentage decrease, decreasing by 67% (£500 million). For further information, please see the section Detailed analysis for the most significant non-structural tax reliefs.

3.3 Single-year cost estimates

Where HMRC does not produce multi-year estimates we look at whether single-year estimates are possible. These single-year cost estimates are unchanged since our May 2024 publication. Since committing in 2019 to publish cost information for more reliefs, we have published 155 single-year non-structural cost estimates where reliefs were previously uncosted. Around half of these cost estimates are negligible, see table 5.

Each cost estimate has been assigned an uncertainty level. Our assessment of the uncertainty level is broad-based and considers the quality of the data used and the assumptions made, see the accompanying quality and methodology information report for more details.

Table 5: number of reliefs estimates with a single-year costing by uncertainty rating

Cost band	Low	Medium	High	Total
Negligible (<£3 million)	33	22	26	81
£3 million < x ≤ £25 million	5	16	13	34
£25 million < x ≤ £50 million	3	2	10	15
£50 million < x ≤ £75 million	1	1	0	2
£75 million < x ≤ £100 million	0	0	5	5
£100 million < x ≤ £250 million	2	4	2	8
£250 million < x ≤ £500 million	0	2	1	3
£500 million < x ≤ £1 billion	0	1	3	4
>£1 billion	0	2	1	3

4. Methodology and quality assurance

In December 2023 we published a new accompanying quality and methodology information report for all tax reliefs statistics (structural and non-structural). We have now updated this for December 2024. For information on the data and methods used to produce estimates within this bulletin and the accompanying statistical tables, see the accompanying methodology and quality information report.

We are committed to continuously improving the Official Statistics we publish. A panel, led by senior HMRC analysts, was set up in 2018 to review the methodology of reliefs on a rolling basis. Our quality assurance processes were reviewed in October 2020 and we have in place checks to minimise the risk of error and a rigorous quality assurance review process. The publication is also peer-reviewed by different team members and overseen by senior analysts including the team’s senior statistician.

In May 2022 we published a new background quality report for the tax relief statistics.

5. Detailed analysis for the most significant non-structural tax reliefs

For the 38 largest non-structural tax reliefs worth more than £500 million, the following section explores the changes in costs over time. Costs are presented in cash terms and as a share of nominal GDP, as the cash cost will tend to rise and fall in line with the underlying economic activity.

Detailed analysis is available for the following reliefs:

Table 6: Large reliefs with detailed analysis within this publication

Tax head	Relief
Capital Gains Tax	Business Asset Disposal Relief
Capital Gains Tax	Private residence relief
Corporation Tax	Capital allowances: ring-fence oil business trades, first-year capital allowances for plant or machinery
Corporation Tax	Film tax relief
Corporation Tax	High-End TV Tax Relief
Corporation Tax	Patent box
Corporation Tax	Research and development tax relief: R&D Expenditure Credit
Corporation Tax	Research and development tax relief: small and medium companies scheme
Hydrocarbon Oil Duties	Duty rate for marked gas oil and kerosene used as fuel in an engine, other than in a road vehicle or for heating
Income Tax	Charitable donations
Income Tax	Enterprise Investment Scheme (EIS) - Income Tax Relief
Income Tax	Exemption for the first £30,000 of a termination award that would otherwise be chargeable as specific employment income
Income Tax	Marriage Allowance
Income Tax	Personal Savings Allowance (PSA)
Income Tax	Registered pension schemes
Income Tax and Capital Gains Tax	Individual Savings Accounts
Income Tax and Corporation Tax	Capital allowances - annual investment allowance
Income Tax and NICs	Employer Supported Childcare including workplace nurseries IT
Income Tax and NICs	Enterprise Management Incentives (EMI)
Inheritance Tax	Business and Agricultural Property Relief (BPR and APR)
Inheritance Tax	Gifts to charities
Inheritance Tax	Residence Nil Rate Band
Inheritance Tax	Transfers between Spouses and Civil Partners
NICs	Contributions to, and benefits from, registered pension schemes
NICs	Employment Allowance
NICs	Relief on employer National Insurance contributions for employees under 21
Stamp Duty Land Tax	First Time Buyers Relief
VAT	Construction and sale of new dwellings (includes refunds to DIY builders)
VAT	Domestic fuel and power
VAT	Domestic passenger transport
VAT	Drugs and supplies on prescription
VAT	Food
VAT	The VAT Zero rate for children’s clothing and protective footwear and helmets
VAT	VAT registration threshold
VAT	Vehicles and other supplies to disabled people [vehicles only]
VAT	Water and sewerage services
VAT	Zero rate for printed matter and e-publications

The GDP data is taken from Table 1.4 of the October 2024 Office for Budget Responsibility Economic and fiscal outlook.

The cost (£ million) and number of claimants estimates given in the following tables are outturn data except where followed by an asterisk (*), which indicates that that estimate is a forecast.

5.1 Capital Gains Tax - business asset disposal relief

Description

Certain disposals chargeable to CGT by individuals and qualifying trustees of all or part of a business are charged at 10% for gains up to April 2025, 14% for gains between April 2025 and April 2026 and 18% thereafter. Qualifying gains for each individual are subject to a £1 million lifetime limit. The relief is typically available when disposing of all or part of your business. Cost estimates and volumes for BADR also include claims for Investors’ Relief as the two reliefs cannot be separated in the data at present. Investors’ Relief claims make up only a very small proportion of the totals presented in the tables.

Objective: to encourage genuine risk takers and entrepreneurs to start up or invest in their own personal company over the long term.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	2,800	1,100	1,200	1,200	1,200*	3,400*
Cost (% GDP)	0.125%	0.053%	0.051%	0.047%	0.044%*	0.121%*
Number of claimants	47,000	47,000	48,000	44,000	-	-

Figure 2: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

At Autumn Budget 2024 the following Capital Gains Tax (CGT) rate increases were announced:

• the main rates of CGT that apply to assets other than residential property and carried interest were increased from 10% and 20% to 18% and 24% respectively, for disposals made on or after 30 October 2024
• the rate of Capital Gains Tax that applies to Business Asset Disposal Relief and Investors’ Relief was increased from 10% to 14% for disposals made on or after 6 April 2025, and from 14% to 18% for disposals made on or after 6 April 2026

A large increase in the cost of BADR is forecast for the 2024 to 2025 tax year to reflect taxpayers bringing forward BADR-eligible disposals from future years in anticipation of these tax rate changes.

In addition, the increase in the main CGT rates which would be charged in the absence of the relief means that between 30 October 2024 and 6 April 2025 the difference between the main rates of CGT and the BADR rate will be larger than in the preceding years. This further increases the cost of the relief in the 2024 to 2025 tax year.

The sharp fall in 2020 to 2021 reflects the government’s Budget 2020 announcement to lower the BADR lifetime limit from £10 million to £1 million, implemented from 11 March 2020. Eligible disposals made on or after 11 March 2020 were affected, leading to a small impact for the 2019 to 2020 tax year.

The 2023 to 2024 and 2024 to 2025 costings are a forecast based on previous years’ actual data and the profile of the latest CGT forecast.

Distributional analysis

HMRC Capital Gains Tax statistics show that 8% of CGT came from disposals that qualified for BADR, a slight increase from 7% in the previous year. BADR was claimed by 44,000 taxpayers on £12.5 billion of gains in the 2022 to 2023 tax year, resulting in a total tax charge of £1.2 billion.

Gains eligible for BADR are concentrated amongst individuals who have larger gains. Around two thirds of gains and tax paid at the BADR rate came from the 23% of individuals with qualifying gains of £500,000 or more.

See the additional distributional analysis tables for more insight into the distributional impact of the relief in 2019 to 2020.

Evaluative summary

The objective of this relief is to encourage genuine risk-takers and entrepreneurs to start up or invest in their own personal company over the long term.

Two reports commissioned by HMRC are available about this relief:

• 2015 report by IFF Research
• 2017 report by IFF Research

Forecast information

There is no published forecast cost for BADR or Investors’ Relief alone. When the new tax rate for entrepreneurs was announced at Spring Budget 2008, the published forecast cost of Business Asset Disposal Relief (then Entrepreneurs’ Relief) was combined with several other Capital Gains Tax reforms. These figures are not comparable to current estimates of the outturn cost of the relief.

5.2 Capital Gains Tax - private residence relief

Description

Gains on the disposal of a residence is exempt from CGT to the extent it has been used as the person’s only or main residence.

Objective: to encourage home ownership and mobility of labour.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	28,300	30,000	37,300	35,300	31,000*	32,000*
Cost (% GDP)	1.261%	1.439%	1.579%	1.383%	1.14%*	1.137%*
Number of claimants	-	-	-	-	-	-

Figure 3: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The nominal cost of the relief and the share of GDP are based on outturn data on the value of UK property transactions and substantial assumptions until 2022 to 2023 and is grown in line with OBR determinants for property prices and transactions the years after (2023 to 2024 and 2024 to 2025). A negative forecast for property prices and transactions contributes to the fall in cost in 2023 to 2024 but is offset to a degree by the reduction of the CGT Annual Exempt Amount to £6,000 in the same year.

The estimated cost of this exemption from capital gains tax does not represent the yield if this exemption were to be abolished, as consequential behavioural effects would substantially reduce yield.

Distributional analysis

Homeowners receive this relief when they sell their main home. The Department for Levelling up, Housing and Communities’ (DLUHC) English Housing Survey (EHS) for 2022 to 2023 shows that 15.8 million out of a total 24.4 million households (65%) in England were owner-occupiers.

The EHS also reported that respondents aged 16 to 24 were more likely to be in private rented accommodation whilst owner occupation was more likely for older respondents.

Statistics published by the Office for National Statistics (ONS) show that property ownership rates increase as income increases.

Evaluative summary

The objective of the relief is to encourage home ownership and mobility of labour.

The Office of Tax Simplification’s 2021 report, Capital Gains Tax – second report: Simplifying practical, technical and administrative issues, discusses this relief.

Forecast information

There is no original cost forecast for this relief because it predates HMRC published estimates.

5.3 Corporation Tax - capital allowances: ring-fence oil business trades, first-year capital allowances for plant or machinery

Description

Full expensing (100% capital allowance rate) for qualifying investment by a company on plant or machinery for use wholly in a ring-fence trade.

Objective: to encourage investment to maximise the economic recovery of the UK’s oil and gas resources.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	1,700	1,200	1,200	1,900	2,000*	1,500*
Cost (% GDP)	0.076%	0.058%	0.051%	0.074%	0.074%*	0.053%*
Number of claimants	150	150	150	150	-	-

Figure 4: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The costings show the impact of capital allowances used to reduce taxable profits, hence they do not include capital allowances that generate taxable losses. Capital allowances that generate taxable losses can be carried forwards or backwards against profits from other years or surrendered as group relief.

The change in cost over time reflects changes in energy prices and firms’ investment expenditure (CapEx). Changes in energy prices affect the profitability of relief claimants and their ability to use CapEx to reduce current (in-year) taxable profits as opposed to generating losses to be carried forwards or backwards. Energy prices fell sharply in 2020 due to Covid’s impact on demand before recovering again from mid2021. Energy prices spiked in early 2022 following Russia’s invasion of Ukraine but have since fallen back, although they remain at relatively high levels. CapEx fell each year between 2019 and 2021. The CapEx reduction partially offsets the impact of a higher proportion of CapEx being set against profits due to the improved profitability seen in 2021. CapEx rose each year between 2021 to 2023 but is expected to fall back between 2023 to 2024.

Evaluative summary

The objective of this relief is to support business investment into UK’s oil and gas production.

External data sources

North Sea investment data is sourced from the North Sea Transition Authority data centre.

Forecast information

First year plant and machinery capital allowances for Oil & Gas Ring Fence trades was announced at Budget 2002. The announcement forecast cost covers the years between 2002 to 2003 and 2004 to 2005. The announcement forecast period does not overlap with the period for which we publish outturn costs in this publication. Therefore, the two sets of figures are not comparable.

Furthermore, the forecast cost of the relief when it was introduced was combined with the revenue impact of introducing the 10% supplementary charge. Therefore, the forecast cost is not equivalent to the outturn cost.

5.4 Corporation Tax - film tax relief

Description

Film production companies can claim additional corporation tax relief for film production expenditure in the UK. Companies not making a profit may be able to surrender a loss in return for a tax credit. For expenditure incurred from 1 January 2024, companies are able to claim a new, ‘above-the-line’ tax credit, the Audio-Visual Expenditure Credit (AVEC). This will run in parallel with the existing Film Tax Relief until Film Tax Relief sunsets in April 2027, and will replace it from that date. Figures for 2024-25 include claims made for AVEC by film production companies.

Objective: to encourage the production of films in the UK.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	630	420	520	550	590*	640*
Cost (% GDP)	0.028%	0.02%	0.022%	0.022%	0.022%*	0.023%*
Number of claimants	830	675	715	805	-	-

Figure 5: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

Companies have up to two years after the end of their accounting period to make a claim for film tax relief. The amount paid out in 2022-23 is derived using partial outturn data and includes an uplift factor to account for claims not yet received by HMRC. The amount paid estimates for the 2023 to 2024 and the 2024 to 2025 tax years are forecasts.

The amount paid for film tax relief had grown steadily up to the 2019 to 2020 tax year, however the number of claimants and the amount paid fell sharply in the tax year 2020 to 2021. This is primarily due to the effects of the Covid-19 pandemic. There has been some recovery in both the amount paid and number of claimants in the following years. This is partly due to the increase in the number of feature length films produced for streaming services, which instead claim High-end TV relief. However, the amount of paid out remains below its pre-COVID peak.

Distributional analysis

HMRC’s Creative Industries official statistics, provides information about the number of claims, number of companies and amount of relief paid out each year.

The statistics show that in recent years more than half of the total amount paid has come from a small number of large claims of over £5m. In the 2022 to 2023 tax year, around two-thirds of the relief related to claims of over £5m.

Evaluative summary

The objective of this relief is to encourage the production of films in the UK. An evaluation of the impacts of Creative Industry tax reliefs, including Film tax relief, was published in November 2022.

Forecast information

Film Tax Relief is included in the OBR’s corporation tax credits forecast in the Economic and fiscal outlook.

5.5 Corporation Tax - high-end TV tax relief

Description

Television production companies can claim additional corporation tax relief on producing high-end TV programmes in the UK. Companies not making a profit may be able to surrender a loss in return for a tax credit. For expenditure incurred from 1 January 2024, companies were able to claim a new, ‘above-the-line’ tax credit, the Audio-Visual Expenditure Credit (AVEC). This will run in parallel with the existing HETV relief until HETV sunsets in April 2027, and will replace it from that date. Figures for 2024-25 include claims for AVEC made by TV production companies.

Objective: to encourage the production of high-end television programmes in the UK.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	470	360	980	1,100	1,200*	1,300*
Cost (% GDP)	0.021%	0.017%	0.041%	0.043%	0.044%*	0.046%*
Number of claimants	280	295	405	495	-	-

Figure 6: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The amount of high-end TV (HETV) tax relief paid out had been increasing until the 2019 to 2020 tax year, but the number of claimants and amount paid fell in tax year 2020 to 2021, primarily due to the effects of the Covid-19 pandemic. The amount of HETV tax relief paid has increased sharply since. This is in part due to a recovery from the COVID-19 pandemic, which caused a number of projects to be pushed back to the following year. There has also been an increase in claims for high-value TV productions, including single-episodic shows produced for streaming platforms. This trend is in line with statistics published by the BFI, which showed a substantial increase in TV production expenditure in the UK as a result of inward investment in recent years.

Distributional analysis

HMRC’s Creative Industries official statistics provides information about the number of High-End TV claims, number of companies and amount paid out each year.

The statistics show that in recent years more than three-quarters of the total amount paid has come from a small number of large claims over £2m.

Evaluative summary

The objective of this relief is to promote the UK by encouraging the production of high-end TV in the UK. A recent evaluation of the impacts of Creative Industry tax reliefs, including HETV tax relief, including HETV Tax Relief, was published in November 2022.

Forecast information

High-End TV tax relief is included in the OBR’s corporation tax credits forecast in the Economic and fiscal outlook.

5.6 Corporation Tax - patent box

Description

A reduced corporation tax rate for profits from patents.

Objective: to incentivise companies to retain and commercialise existing patents, develop new products and maintain the UK’s position as a world leader in patented technologies.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	1,200	1,200	1,300	1,500*	2,300*	2,400*
Cost (% GDP)	0.053%	0.058%	0.055%	0.059%*	0.085%*	0.085%*
Number of claimants	1,600	1,610	1,630	1,600*	-	-

Figure 7: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The relief was phased in gradually from 2013 to 2014 to 2017 to 2018. In 2016, the government made changes to the design of the Patent Box to comply with new OECD rules for Intellectual Property regimes (the so-called ‘Nexus’ changes). Grandfathering’ rules (GF) allowed companies to claim under the pre-2016 rules in certain circumstances up until July 2021. But businesses will now have to use the profit streaming method and R&D Fraction when calculating the relevant intellectual property profit. This is reflected in the outturn for 2021 to 2022 and in the forecast for future years. The impact will be monitored and updated accordingly.

The forecasted increase in the cost for 2023 to 2024 is due to the change in the headline rate of Corporation Tax, from 19 to 25 per cent.

Distributional analysis

HMRC’s Patent Box statistics (September 2024) show that in the tax year 2022 to 2023, it is provisionally estimated that 1,600 companies elected into Patent Box. This is slightly lower than in the previous year where 1,630 companies elected into Patent Box. Conversely, the value of relief claimed under the Patent Box is estimated to have increased to £1,469 million in the tax year 2022 to 2023 from £1,327 million in the tax year 2021 to 2022. This was primarily driven by large companies claiming more tax relief on average.

Of the companies that elected into Patent Box in tax year 2022 to 2023, it is estimated that 25% were classified as ‘Large’ and accounted for most of the relief claimed (94%).

The number of companies claiming relief varies significantly across UK regions. The area with the fewest number of companies is estimated to have been the North East (2% of the total in tax year 2022 to 2023), and the area with the most companies was the South East (15%); although it is estimated that London-based companies claimed the largest amount of relief (48%). This is based on addresses given to HMRC for tax purposes so may not represent where the economic activity takes place.

Evaluative summary

The objective of this relief is to incentivise companies to retain and commercialise existing patents, develop new products and maintain the UK’s position as a world leader in patented technologies.

Some information on the use of this relief can be found in HMRC’s Patent Box Evaluation (2020).

Responses to HM Treasury’s 2011 consultation on the Patent Box are available.

Forecast information

The published forecast for Patent Box from its introduction covers the years 2013 to 2014 to 2015 to 2016. This period does not overlap with the period for which we publish outturn costs in this publication, therefore the two sets of figures cannot be compared.

5.7 Corporation Tax - research and development tax relief: R&D expenditure credit

Description

Until 2024, this relief is mainly for larger companies, allowing companies to claim a taxable credit on their qualifying R&D expenditure. For accounting periods beginning on or after 1 April 2024, the RDEC scheme will become the merged RDEC scheme and will apply to all companies claiming R&D relief who do not satisfy the R&D intensity condition.

Objective: to support and incentivise Research and Development (R&D) activity in the UK by companies, helping overcome a market failure (positive externality) which causes underinvestment in R&D. This is to incentivise business investment in R&D in the UK, in order to capture the associated spill-over benefits, such as improved skills.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	2,700	2,500	2,800	3,000	4,600*	5,300*
Cost (% GDP)	0.12%	0.12%	0.119%	0.118%	0.169%*	0.188%*
Number of claimants	9,600	10,500	11,000	10,100	-	-

Figure 8: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The Research & Development Expenditure Credit (RDEC), also known as ‘Above the Line’ Credit, was introduced in April 2013. The previous Large Company Scheme continued to run alongside RDEC until April 2016. RDEC is now the only R&D tax relief scheme for large companies. Companies have up to two years after the end of their accounting period to make a claim. The 2022 to 2023 RDEC estimate is based on partial outturn data with an uplift factor to account for returns not yet received by HMRC. The cost estimates for 2023 to 2024 and 2024 to 2025 are forecasts.

The cost of the RDEC scheme has increased throughout the period from 2016 to 2017 to 2019 to 2020. The rising costs reflect growth in qualifying R&D expenditure and increased take-up of the relief over time and the increasing rate of relief – from 11% to 12% in January 2018 and 12% to 13% in April 2020.

In 2020 to 2021 there was a 13% decrease in the cost of support claimed through the RDEC scheme. This was not the case in the number of claimants, however. The number of claimants has increased from 8,100 in 2017 to 2018 to 10,700 in 2020 to 2021. This means that RDEC average claim sizes fell in 2020 to 2021. This may be due to the impact of the COVID-19 pandemic, preventing some R&D activity from taking place. Since then, the average claim cost has increased, in particular for the 2022 to 2023 tax year, where the number of claims decreased by 9% despite an increase in the cost of the relief.

Costs are forecast to grow at a faster pace in 2023 to 2024 and 2024 to 25 driven by an increase in the RDEC rate to 20% for expenditure incurred from 1 April 2023 onwards.

Distributional analysis

HMRC’s Research and Development Tax Credits statistics (2024) provide distributional analysis relevant to the R&D RDEC relief, breaking down the number of claims and the amount of relief claimed by UK region, company size and sector.

Evaluative summary

The objective of this relief is to support and incentivise Research and Development (R&D) activity in the UK by companies, helping overcome a market failure (positive externality) which causes underinvestment in R&D. This is to incentivise business investment in R&D in the UK, in order to capture the associated spill-over benefits, such as improved skills.

HMRC’s Evaluation of the RDEC report (2020) studied the effectiveness of RDEC and found that for every pound spent on RDEC, between £2.40 and £2.70 is additionally invested in R&D by UK companies.

The tax information and impact note (TIIN) published in 2014 states that the rate change would increase aggregate R&D expenditure to benefit the economy more widely via the positive spill over effects (increased innovation and productivity in the wider economy).

External data sources

There are differences between R&D statistics produced from HMRC data and the other main source, Business Enterprise Research and Development (BERD). These differences are discussed in this ONS article.

Forecast information

RDEC is included in the OBR’s corporation tax credits forecast in the Economic and fiscal outlook, but the RDEC forecast is not published separately.

5.8 Corporation Tax - research and development tax relief: small and medium companies scheme

Description

The SME scheme provides small and medium-sized companies with relief on R&D expenditure. Companies can claim an enhancement of 86% on their qualifying R&D expenditure against taxable profits. Loss-makers can surrender all or part of their losses attributable to R&D for a payable credit at a rate of 10% of the surrendered losses. Certain companies qualifying as R&D intensive (that is, their R&D expenditure is 40% or more of total expenditure) can surrender their losses for a 14.5% credit. These rates apply to expenditure incurred from 1 April 2023. Prior to this, the enhancement was 130% and the credit rate on surrenderable loss was 14.5% for all companies. For accounting periods starting on or after 1 April 2024, the relief for lossmaking, R&D intensive SMEs is referred to as ERIS and the intensity threshold is reduced to 30%. SMEs that do not pass the intensity condition or are profit-making will instead claim the merged RDEC scheme, which provides an ‘above the line’ credit of 20% on qualifying expenditure.

Objective: to support and incentivise R&D in the UK by SME companies, helping overcome a market failure (positive externality) which causes underinvestment in R&D. This is to incentivise business investment in R&D in the UK, in order to capture the associated spill-over benefits, such as improved skills.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	4,200	4,200	4,700	4,500	3,400*	3,100*
Cost (% GDP)	0.187%	0.201%	0.199%	0.176%	0.125%*	0.11%*
Number of claimants	71,900	74,100	69,700	53,800	-	-

Figure 9: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

Companies have up to two years after the end of their accounting period to make a claim. The 2022 to 2023 estimate for the R&D SME scheme is based on partial outturn data with an uplift factor to account for returns not yet received by HMRC. The cost estimates for 2023 to 2024 and 2024 to 2025 are forecasts.

The cost of the SME scheme has been rising sharply in recent years. The number of claimants has increased from 52,200 in 2017 to 2018 to 74,100 in 2020 to 2021. This, together with the growth in qualifying R&D expenditure, has contributed to the rising cost, more than doubling between 2017 to 2018 and 2021 to 2022. Recently, the rates of relief have been reduced as described above.

The number of SME claimants fell sharply in the 2022 to 2023 tax year following the introduction of the mandatory additional information online form. To make a valid R&D claim customers must provide further information to support their claim. This requirement was introduced to reduce levels of error and fraud in the R&D schemes and was made mandatory for all R&D claims on 8th August 2023. The cost of the SME scheme also fell slightly in the 2022 to 2023 tax year.

The cost of the scheme is expected to fall further in 2023 to 2024 when the lower relief rates take effect. Costs up to and including 2022 to 2023 are based on the 130% and 14.5% rates.

Distributional analysis

HMRC’s Research and Development Tax Credits statistics (2024) provide distributional analysis relevant to the R&D SME relief, breaking down the number of claims and the amount of relief claimed by UK region, company size and sector.

Evaluative summary

The objective of this relief is to support and incentivise R&D in the UK by SME companies, helping overcome a market failure (positive externality) which causes underinvestment in R&D. This is to incentivise business investment in R&D in the UK, in order to capture the associated spill-over benefits, such as improved skills.

The HMRC-commissioned, London Economics Evaluation of the R&D tax relief for SMEs (2020) assessed the direct impacts of this scheme by calculating an ‘additionality ratio’ (the R&D expenditure that would be generated by an increase in the generosity of the scheme relative to the additional cost incurred by Exchequer).

In 2024, HMRC annual report and accounts published an updated estimate of error and fraud for claims received in 2021-22. For illustrative purposes HMRC also considered the possible error and fraud position for the tax year 2023 to 2024 following the implementation of several administrative changes. Details can be found on page 243 of HMRC’s annual report and accounts 2023 to 2024. HMRC has also published a paper on the department’s approach to the Research and Development tax reliefs.

Forecast information

The R&D SME scheme is included in the OBR’s corporation tax credits forecast in the latest Economic and fiscal outlook but the R&D SME forecast is not published separately.

5.9 Hydrocarbon Oil Duties - duty rate for marked gas oil and kerosene used as fuel in an engine, other than in a road vehicle or for heating

Description

Use of gas oil as motor fuel other than in road vehicles is included in the scope of the partial rebate that also applies to heating use. A partial rebate applies to kerosene used as motor fuel other than in a road vehicle. This includes use in off-road vehicles, rail, inland waterways, transport refrigeration units, generating sets etc.

Objective: some oils and fuels are taxed at a lower (rebated) rate, historically because fuel duty was intended to be a tax on road vehicles. At Budget 2020, the government announced that it would remove the entitlement to use red diesel from most sectors from April 2022. The tax changes will ensure that most users of red diesel use fuel taxed at the standard rate for diesel from April 2022, like motorists, which more fairly reflects the harmful impact of the emissions they produce. Removing most red diesel entitlements will also help to ensure that the tax system incentivises users of polluting fuels like diesel to improve the energy efficiency of their vehicles and machinery, invest in cleaner alternatives, or just use less fuel.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	2,400	2,200	2,400	890	910	910*
Cost (% GDP)	0.107%	0.106%	0.102%	0.035%	0.033%	0.032%*
Number of claimants	-	-	-	-	-	-

Figure 10: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of this relief remained stable until 2021 to 2022, reflecting relatively flat consumption.

As detailed in an HMRC policy paper, the entitlement to use red diesel was removed from most users from April 2022, resulting in a substantial fall in the cost of the relief from 2022 to 2023 onwards.

The cost of relief in 2023-24 is higher than estimated previously. This is because gas oil consumption was higher than expected in 2023-24, raising receipts relative to our previous forecast.

Distributional analysis

Domestic users of the relief are likely to be off the gas grid. 2013 research from the Department for Energy and Climate Change (now DESNZ) shows that homes off the gas grid are more likely to be in rural areas.

Evaluative summary

Some oils and fuels are taxed at a lower (rebated) rate, historically because fuel duty was intended to be a tax on road vehicles. At Budget 2020, the government announced that it would remove the entitlement to use gas oil (known as red diesel) from most sectors from April 2022. The tax changes mean most users of gas oil will move to paying the standard rate for diesel from April 2022, like motorists. This more fairly reflects the harmful impact of the emissions they produce.

Removing most gas oil entitlements has also helped to ensure that the tax system incentivises users of polluting fuels like diesel to improve the energy efficiency of their vehicles and machinery, invest in cleaner alternatives, or use less fuel.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.10 Income Tax - charitable donations

Description

Exempts charitable donations from Income Tax (Gift Aid, Higher Rate Relief, Payroll Giving, Gifts of Shares and Property.)

Objective: to support charitable activities, while not providing relief to organisations simply because they are charities.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	2,110	2,060	2,160	2,410	2,430	2,580*
Cost (% GDP)	0.094%	0.099%	0.091%	0.094%	0.089%	0.092%*
Number of claimants	-	-	-	-	-	-

Figure 11: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of this relief has remained relatively stable over time, rising in cash terms, but broadly in line with wider Income Tax receipts. In the tax year ending April 2021, the cost of relief fell in cash terms slightly due to COVID-19.

Distributional analysis

A 2016 research report from Quadrangle, commissioned by HMRC, estimates that 95% of the UK population aged 16 or over donated to charity within the 12 months prior to interview. The research report goes into further detail about those who do and do not claim Gift Aid, which is the biggest component of this relief.

Evaluative summary

The objective of this relief is to support charitable activities, while not providing relief to organisations simply because they are charities.

A 2016 research report from Quadrangle commissioned by HMRC found that Gift Aid was added to 52% of UK individuals’ donations by value.

Forecast information

The final year is a forecast based on the year to approximately September. The previous years’ totals are mostly actuals, with some minor elements forecasted, for example, relief on higher rates of Income Tax and Gifts of Shares and Property, which is mostly claimed in arrears.

5.11 Income Tax - enterprise investment scheme (EIS) - income tax relief

Description

Tax relief against the income tax liability for individuals of 30% of the amounts subscribed for shares in early stage qualifying trading companies. The maximum amount subscribed in a tax year on which relief can be claimed is £2 million, but any amount over £1 million must be for shares issued by one or more knowledge-intensive companies.

Objective: to incentivise individuals to make new equity investments in high risk, early stage Small and Medium-sized Enterprises (SMEs) to help them grow and develop

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	530	460	640	550	570*	570*
Cost (% GDP)	0.024%	0.022%	0.027%	0.022%	0.021%*	0.02%*
Number of claimants	36,550	39,035	44,810	40,485	-	-

Figure 12: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of EIS has fluctuated slightly year on year. The drop in 2020 to 2021 reflects the impacts of COVID-19. Costs then increased sharply in 2021 to 2022 as a result of a strong post-Covid rebound. This is reflective of general strong performance in the wider venture capital markets. Costs saw a slight reduction from the previous year in 2022 to 2023 due to rising interest rates affecting the venture capital market. Similar declines were noted across the other Venture Capital Tax Reliefs. We forecast costs to increase slightly in 2023 to 2024, but we expect this to be tempered as a result of policy changes to expand the investment limits of the Seed Enterprise Investment Scheme (SEIS) scheme. We anticipate that some investment will be redirected from EIS into SEIS now that these limits have increased due to its more favourable tax incentives.

Whilst there are fluctuations in the number of investors year to year, National Statistics for EIS show that there were 21,835 investors in 2012 to 2013, rising to 45,155 investors in 2021 to 2022 with a slight reduction to 40,485 in 2022 to 2023.

Over the period covered in this publication, venture capital schemes (EIS, SEIS, SITR, VCTs) have had a number of legislative changes to incentivize uptake or to manage abuse and avoidance, with corresponding effects on the cost of the schemes.

Distributional analysis

Tables 9 and 10 of HMRC’s EIS statistical tables show that in 2022 to 2023, the total amount of investment on which relief was claimed through Self-Assessment tax returns was approximately £1.49 billion by 40,485 investors.

Around 93% of investors invested less than £100,000, with the remaining 7% investing amounts up to £2 million. Those investing less than £100,000 represent around 46% of the total amount of investment. These estimates are provisional and subject to revision in future publications.

Evaluative summary

The objective of this relief is to incentivise individuals to make new equity investments in high-risk, early stage Small and Medium-sized Enterprises (SMEs) to help them grow and develop.

For the latest evaluation of the EIS and other Venture Capital Schemes, see Evaluation of Venture Capital Schemes.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.12 Income Tax - exemption for the first £30,000 of a termination award that would otherwise be chargeable as specific employment income

Description

Where payments and benefits on termination of employment are below £30,000, they will not be taxed as employment income. The £30,000 threshold does not apply to any element of the payment that is post-employment notice pay (which is chargeable to income tax).

Objective: to ensure that those who lose their job are supported through the tax system, while limiting the scope of employers avoiding tax by disguising salary or pay-offs as redundancy payments.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	850	1,400	1,100	700	900*	1,100*
Cost (% GDP)	0.038%	0.067%	0.047%	0.027%	0.033%*	0.039%*
Number of claimants	250,000	600,000	350,000	200,000	250,000*	300,000*

Figure 13: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The very large spike in the cost and recipients of the relief in 2020 to 2021 and fall thereafter reflects a spike in redundancies during 2020 to 2021 reflecting in part the impact of COVID-19.

Evaluative summary

The objective of this relief is to ensure that those who lose their job are supported through the tax system, while limiting the scope of employers avoiding tax by disguising salary or pay-offs as redundancy payments.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.13 Income Tax - marriage allowance

Description

Gives a tax reduction to a person whose spouse or civil partner has elected for a reduced Personal Allowance.

Objective: to recognise marriage and civil partnerships in the income tax system by providing a financial benefit where one spouse or civil partner has an income less than their Personal Allowance.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	520	550	550	560	580*	590*
Cost (% GDP)	0.023%	0.026%	0.023%	0.022%	0.021%*	0.021%*
Number of claimants	2,020,000	2,170,000	2,280,000	2,350,000	-	-

Figure 14: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of Marriage Allowance has shown consistent steady increases each year as the number of claimants has increased. The estimated cost figures reflect the anticipated take up of the allowance when all backdated claims have been made in future tax years (up to 4 years later).

Estimates of the number of claimants are the latest available and reflect only successful claimants up to that point in time and not the anticipated full take up when all backdated claims have been made in future tax years (up to 4 years later).

Distributional analysis

The TIIN published in 2014 alongside the introduction of this relief indicated that this relief would impact the household sector as it would increase real household disposable income. It was expected that 35% of couples who would gain from this measure would be above the state pension age.

Evaluative summary

The objective of this relief is to recognise marriage and civil partnerships in the income tax system by providing a financial benefit where one spouse or civil partner has an income less than their Personal Allowance.

Forecast information

The original cost estimate period does not overlap with the period for which we publish outturn costs in this publication, therefore the two sets of figures cannot be compared. For comparison of announcement forecast costs to outturn costs up to 2018 to 2019, see the December 2021 tax reliefs publication.

5.14 Income Tax - personal savings allowance (PSA)

Description

0% tax rate on taxable savings income. Most taxpayers get PSA of £1000, Higher Rate taxpayers get £500 PSA and PSA is not available to additional rate taxpayers.

Objective: to support individuals to build up savings and improve their financial resilience by removing or reducing tax liabilities on their savings income.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	380	270	200	350*	520*	570*
Cost (% GDP)	0.017%	0.013%	0.008%	0.014%*	0.019%*	0.02%*
Number of claimants	10,800,000	8,430,000	8,630,000	9,270,000*	9,830,000*	10,300,000*

Figure 15: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

There have been changes to the PAYE data for bank and building society interest. From tax year 2018 to 2019 data on interest from banks and building societies are now received through NPS (National Insurance and PAYE system) and no longer estimated through imputation. Any amounts of savings interest below £1 are rounded down to zero as per HMRC’s tax calculation.

Individuals do not have to report small amounts of savings which do not exceed the PSA. The number of individuals with savings income in excess of their PSA will decrease if interest rates or investment returns decrease. Therefore, changes in interest rates or investment returns have a significant impact on the cost of the PSA. This can be seen in 2022 to 2023 and 2023 to 2024 as interest rates have risen.

Distributional analysis

The TIIN published in 2016 alongside the introduction of the Personal Savings Allowance, explained that the relief would reduce income tax on savings for those on low and medium incomes and provide the most benefit to basic and higher rate taxpayers.

Evaluative summary

The objective of this relief is to support individuals to build up savings and improve their financial resilience by removing or reducing tax liabilities on their savings income.

Forecast information

There is no published forecast cost for the Personal Savings Allowance alone. When the allowance was announced at Spring Budget 2015, the published forecast cost of the Personal Savings Allowance was combined with a measure to increase ISA flexibility. These figures are not therefore comparable to current estimates of the outturn cost of the relief.

5.15 Income Tax - registered pension schemes

Description

Covers net relief including relief on contributions, relief on investment returns, and tax paid in retirement (net of 25% lump sum).

Objective: the purpose of UK tax-relieved pension saving is to provide benefits in retirement for the member and/or their beneficiaries. The government provides pensions tax relief to encourage individuals to take responsibility for retirement planning and to recognise that pensions is longer term than other forms of saving.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	22,700	25,200	24,900	24,800	28,500*	29,500*
Cost (% GDP)	1.011%	1.209%	1.054%	0.971%	1.048%*	1.048%*
Number of claimants	-	-	-	-	-	-

Figure 16: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

The methodology used to produce these estimates aligns with that used for Table 6 of the Private pensions statistics publication. There is an accompanying quality report for the Private pension statistics publication. The forecasts for 2023 to 2024 and 2024 to 2025 incorporate the effects of policy changes, including the abolition of the Lifetime allowance and the increase to the Annual allowance announced at Spring Budget 2023.

Commentary on cost change over time

The estimated cost of income tax relief on registered pension schemes has increased in cash terms from 2019 to 2020 to 2024 to 2025. One driver of the cost of Income Tax relief on registered pension schemes is the aggregate value of pension contributions, which tends to move in line with wider labour market income. Growth in labour income over recent years may have supported the rise in the estimated cost of this relief.

The increase to the annual allowance and the abolition of the lifetime allowance has likely increased contributions and decreased pension tax charges over this period, which will increase net tax relief on pensions. The lowering of the additional rate threshold in 2023 to 2024 will also increase net tax relief on pensions by bringing more people into the top income tax band.

The full methodology for Table 6 can be found in section 5.2 of the background and methodology document.

Distributional analysis

ONS workplace pensions statistics show that nearly eight out of ten of UK employees had a workplace pension in April 2021.

HMRC Private pension statistics (Table 6) estimate that in 2022 to 2023, 68% of Income Tax relief on total pension contributions was relieved on contributions to personal or private sector occupational schemes, and 54% was relieved on contributions to defined contribution schemes. It is estimated that 7% of Income Tax relief on total pension contributions was relieved at the additional rate of Income Tax, 56% at the higher rate, and 37% at the basic rate.

Evaluative summary

The purpose of UK tax-relieved pension saving is to provide benefits in retirement for the member and/or their beneficiaries. The government provides pensions tax relief to encourage individuals to take responsibility for retirement planning and to recognise that pensions are longer-term than other forms of saving.

HM Treasury published a consultation document in 2015 to seek views on whether pension tax relief should be reformed. The responses to the consultation have also been published.

HMRC commissioned independent research with individuals and employers on pension tax relief in 2015. The research concluded that only 41% of adults correctly believed that the government tops up people’s pension contributions through tax relief. Many people underestimated the amount of tax relief the government provided on pension contributions. Given their lack of awareness, most people were willing to consider an alternative pension tax system, although this would not necessarily change the amount they saved.

Forecast information

Forecasted relief cost figures for 2022 to 2023 and 2023 to 2024 may be revised in the 2025 private pensions publication as further outturn data becomes available. In particular, 2022 to 2023 is currently based partially on both forecasted data and outturn data; further information can be found in Table 6 of the Private pension statistics.

5.16 Income Tax and Capital Gains Tax - individual savings accounts

Description

Individuals do not pay tax on any income (i.e. dividends, interest and bonuses) they receive from their ISA savings and investments. Individuals do not pay tax on capital gains arising on their disposals of ISA investments. In 2017 the Lifetime ISA was introduced, which had a government bonus as well as the tax relief.

Objective: to encourage individuals to save over time by removing the tax liability for savings income. The Lifetime ISA aims to both encourage savings and support individuals under 40 to buy their first home or save for later life.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	3,900	4,100	4,300	5,100	7,700	9,400*
Cost (% GDP)	0.174%	0.197%	0.182%	0.2%	0.283%	0.334%*
Number of claimants	27,161,000	22,221,000	22,267,000	-	-	-

Figure 17: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of Individual Savings Accounts (ISAs) has generally increased over time, with large increases in recent years. The large increases are due to rising interest rates, and policy decisions to decrease the dividend allowance from £2,000 to £500 and the capital gains annual exempt amount from £12,300 to £3,000. The longer-term increase in the cost of ISAs over time is generally driven by increased overall accumulated wealth in ISAs.

It is projected that costs will continue to increase over time as greater wealth is built within ISAs. Costs may also increase further if the dividend allowance and capital gains annual exempt amounts are further reduced. However, costs may fall if interest rates decrease.

The number of claimants appears to have fluctuated over time. Due to the calibration done to equalise the individual and aggregate ISA returns received from providers, the reported number of ISA accounts can fluctuate due to large differences between these two datasets.

Distributional analysis

HMRC Annual Savings Account (ISA) Statistics reported that in 2022 to 2023 approximately 12.5 million adult ISAs were subscribed to, with subscriptions totalling around £72.2 billion. The average subscription was £5,797. The total market value of all adult ISAs was around £725.9 billion at the end of 2022 to 2023.

In 2021 to 2022, the median ISA holder (by income) had annual income of between £20,000 and £29,999, the average ISA market value of this income group was £31,014. For individuals with an income of £150,000 or more, the average ISA holdings was £96,171. Savers in higher income groups generally preferred stocks and shares ISAs over cash ISAs while those in lower income groups strongly preferred cash ISAs.

The greatest number of ISA holders in 2021 to 2022 were in the 65 and over age group; this group also had the highest average ISA market value of £63,365 compared to £7,698 for under 25s and £9,477 for those aged 25 to 34. However only 32% of those 65 and over with ISA holdings subscribed to their ISAs in 2021 to 2022, compared to 70% of those under 25.

In 2021 to 2022, 49.8% of investors with ISA holdings worth £50,000 or more were female, and 51.4% of investors with ISA holdings worth up to £2,499 were female. The proportion of UK adults that held an ISA was 42%. The South East and South West regions have among the highest proportion of adults holding ISAs at 45.6% and 46.4% each, while London has the lowest at 37.6%.

Evaluative summary

The objective of this relief is to encourage individuals to save over time by removing the tax liability for savings income. The Lifetime ISA aims to both encourage savings and support individuals to buy their first home or save for later life.

A 2007 HMRC report explored the levels of Individual Saving Account (ISA) ownership.

Forecast information

The original announced cost for Individual Savings Accounts from its introduction at Budget 1998 covers the years 1998 to 1999 to 2000 to 2001. This time period does not overlap with the period for which we publish outturn costs in this publication, therefore the two sets of figures are not comparable.

5.17 Income Tax and Corporation Tax - capital allowances - annual investment allowance

Description

Annual Investment Allowance provides 100% income tax/corporation tax relief on qualifying capital expenditure up to a limit of £1 million. This limit has been permanently set to £1 million per annum as of Autumn Budget 2022.

Objective: the Annual Investment Allowance (AIA) provides a major simplification benefit by lowering the administrative burden firms, and particularly Small and Medium-sized Enterprises (SMEs), face when calculating their capital allowances entitlement. In offering a 100% tax deduction equivalent to the level of qualifying expenditure in the year it is made, up to an annual limit, the AIA also represents an investment incentive by providing a major cash-flow benefit for businesses investing in qualifying plant and machinery assets.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	4,200	4,600	3,800	3,100	5,500*	7,000*
Cost (% GDP)	0.187%	0.221%	0.161%	0.121%	0.202%*	0.249%*
Number of claimants	1,230,000	1,300,000	1,120,000	795,000	-	-

Figure 18: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

At Autumn Budget 2018 the government announced a temporary increase from £200,000 to the AIA threshold of £1 million from January 2019. This was made permanent at the Autumn Statement 2022. The higher AIA threshold is reflected in the marked increase in 2019 to 2020 and 2020 to 2021 compared to prior years.

In 2021 to 2022 and 2022 to 2023 the cost of the AIA has fallen, as some of the expenditure that would usually claim the 100% AIA has instead claimed the 130% Super-Deduction which was introduced in April 2021. In 2023 to 2024 the cost nearly doubles and continues to rise in 2024 to 2025, due to the end of the super-deduction and the increased Corporation Tax main rate from 19% to 25%.

Distributional analysis

HMRC’s Corporation Tax statistics (table 12b) shows that in 2019 to 2020 the sector which claimed the highest amount of AIA claimed was Manufacturing (£3.7 billion) followed by Wholesale and Retail Trade, Repairs (£3.4 billion). The sector with the lowest amount of AIA claimed was Mining and Quarrying (£115 million).

A TIIN published in 2023 explains the permanent increase of AIA to £1,000,000. The assessment of the impact on small and micro businesses concluded that the temporary increase is expected to benefit the largest small and micro businesses.

Evaluative summary

The Annual Investment Allowance (AIA) provides a major simplification benefit by lowering the administrative burden firms, and particularly Small and Medium-sized Enterprises (SMEs), face when calculating their capital allowances entitlement.

In offering a 100% tax deduction equivalent to the level of qualifying expenditure in the year it is made, up to an annual limit, the AIA also represents an investment incentive by providing a major cash-flow benefit for businesses investing in qualifying plant and machinery assets. The OBR Economic and fiscal outlook (November 2022) discusses the impact of the permanent increase in the AIA threshold on business investment.

Forecast information

The published forecast cost for the Annual Investment Allowance scheme when announced at Budget 2007 covers the years 2007 to 2008 up to 2009 to 2010. This time period does not overlap with the period for which we publish outturn costs in this publication, therefore the two sets of figures are not comparable.

5.18 Income Tax and NICs - employer supported childcare including workplace nurseries IT

Description

Relief from income tax for an employee in respect of employer provided care (unlimited), childcare vouchers (currently, up to £55 per week) and directly-contracted childcare (currently, up to £55 per week).

Objective: to support working parents by making childcare more affordable and engaging employers on the issue of childcare.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	750	460	360	290	250	210*
Cost (% GDP)	0.033%	0.022%	0.015%	0.011%	0.009%	0.007%*
Number of claimants	700,000	510,000	400,000	320,000	250,000	-

Figure 19: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of the Employer Supported Childcare tax relief saw a significant decrease in 2020 to 2021 and continues to decrease year on year.

Childcare vouchers closed to new entrants in October 2018. The number of users and the cost of Employer Supported Childcare reduced significantly in 2020 to 2021; while the number of users is still in decline, the rate has slowed between 2021 to 2022 and 2022 to 2023. Additionally, a fall in the average individual value of Childcare vouchers cut costs further.

Evaluative summary

The objective of this relief is to support working parents by making childcare more affordable and engaging employers on the issue of childcare.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.19 Income Tax and NICs - enterprise management incentives (EMI)

Description

If an employee holds options to qualifying EMI shares (maximum £250k) there is no income tax/NICs on grant or on exercise (as long as option not issued at a discount).

Objective: to encourage employee share ownership and help small, higher-risk companies recruit and retain key employees to help company growth. The relief is limited by company size based on the number of employees and the gross assets held.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	-	-	680	500	-	-
Cost (% GDP)	-	-	0.029%	0.02%	-	-
Number of claimants	-	-	13,000	11,000	-	-

Figure 20: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

Due to a potential data issue, cost estimates for the Enterprise Management Incentives (EMI) relief were removed from the December 2023 publication. The error did not impact tax liabilities or payments received by HMRC or penalties to customers. We are reviewing the robustness of data used to produce statistics for the period up to tax year ending 2021 and we have withdrawn estimates for the affected years. Estimates for the relief are therefore only included in this publication for the tax year ending 2022 and tax year ending 2023.

The nominal cost of the relief and the share of GDP are based on Employment Related Securities (ERS) data submitted to HMRC by companies who operated the tax-advantaged Enterprise Management Incentives (EMI) scheme in 2021 to 2022 and 2022 to 2023. The data reflects the Income Tax and National Insurance Contributions (NICs) relief on the value of the gains made by employees who were granted options to buy shares and subsequently exercised those shares. A reduction in the cost of relief between 2021 to 2022 and 2022 to 2023 in part reflects approximately 2,000 fewer employees exercising shares in the latter year.

The estimated cost of this exemption from Income Tax and NICs does not represent the yield if this tax-advantaged share scheme were to be abolished, as consequential behavioural effects may reduce yield. For example, there are three other tax-advantaged share schemes that companies may increase usage of if EMI were removed.

Distributional analysis

The EMI scheme is restricted to small companies that have fewer than 250 full time equivalent employees and less than £30m of gross assets. The scheme is discretionary and allows companies to choose which employees to offer the scheme to.

The maximum value of share options that can be granted to employees is £250,000. HMRC’s Employee Share Scheme (ESS) Statistics show that the average gain made on share options exercised by employees in 2022 to 2023 was £81,500. A detailed commentary on EMI statistics can be found in that publication.

Evaluative summary

HMRC commissioned an evaluation of the Enterprise Management Incentive (EMI) scheme and the findings were published in June 2018.

Forecast information

There is no published EMI tax relief forecast. The relieved Income Tax and NICs liabilities and receipts will be baselined within the Office for Budget Responsibility’s (OBR) forecasts.

5.20 Inheritance Tax - business and agricultural property relief (BPR and APR)

Description

BPR: Relief from IHT on the transfer of relevant business property.

APR: Relief from IHT on a transfer of agricultural property.

Objective: To support business continuity, including for agricultural businesses.

Business Property Relief (BPR)

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	685	1,210	1,050	1,150*	1,120*	1,140*
Cost (% GDP)	0.031%	0.058%	0.044%	0.045%*	0.041%*	0.04%*
Number of claimants	2,820	3,380	4,170	-	-	-

Figure 21: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Agricultural Property Relief (APR)

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	320	360	550	640*	655*	665*
Cost (% GDP)	0.014%	0.017%	0.023%	0.025%*	0.024%*	0.024%*
Number of claimants	1,170	1,300	1,730	-	-	-

Figure 22: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

For BPR, in 2020 to 2021, both the number of estates claiming the relief and the total value of relieved transfers increased compared to the previous tax year. As such, the overall cost of the relief increased significantly due to an increase of the average qualifying relief per claimant. In 2021 to 2022, whilst the number of estates rose when compared to the previous year, the size of the average qualifying relief per claimant fell, resulting in the total value of relieved transfers decreasing. The overall cost of the relief therefore decreased when compared to the previous tax year.

For APR, in 2020 to 2021, both the number of estates and the total value of relieved transfers increased compared to the previous tax year. As such, the overall cost of the relief increased, despite a small decrease in the average qualifying value of relief per claimant. In 2021 to 2022, the number of estates rose when compared to the previous year, the size of the average qualifying relief per claimant also rose, resulting in the total value of relieved transfers increasing significantly. The overall cost of the relief therefore increased when compared to the previous tax year.

Distributional analysis

For BPR, table 12.2 of HMRC’s Inheritance Tax Liabilities Statistics show that the total amount of estate value relieved in 2021 to 2022 was £2.85 billion, of which £2.04 billion was on unquoted shares (claimed by 2,670 estates) and £0.81 billion (claimed by 1,680 estates) was on other business property. It is important to note here that the values being relieved are not the same as the cost to the Exchequer of the relief. This is because the value of assets qualifying for the relief are not included in the chargeable estate for IHT purposes.

For APR, table 12.2 of HMRC’s Inheritance Tax Liabilities Statistics show that the total amount of estate value relieved in 2021 to 2022 was £1.57 billion (claimed by 1,730 estates). It is important to note here that the values being relieved are not the same as the cost to the Exchequer of the relief. This is because the value of assets qualifying for the relief are not included in the chargeable estate for IHT purposes.

Had the reliefs not been available, the value of those assets would have been included within the chargeable estate for IHT purposes, and after the application of available tax-free allowances, would face the relevant marginal tax rate. This determines the cost of the relief to the Exchequer.

The latest available tax year for which complete information is available is 2021 to 2022, and an estate can make more than one relief claim. For more information, please see the background quality report accompanying the statistics.

Evaluative summary

The objective is to support business continuity, including for agricultural businesses.

HMRC commissioned research from IFF Research in 2017.

Forecast information

The original cost estimates predate HMRC’s official publications of costs of reliefs.

5.21 Inheritance Tax - gifts to charities

Description

Gifts to charities and property held on trust for charitable purposes are exempt from IHT.

Objective: to encourage charitable giving

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	615	630	855	950*	905*	920*
Cost (% GDP)	0.027%	0.03%	0.036%	0.037%*	0.033%*	0.033%*
Number of claimants	8,190	9,680	9,780	-	-	-

Figure 23: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

In 2019 to 2020, both the number of estates and the total value of exempted transfers decreased but the overall cost of the exemption increased due to an increase of the average qualifying exemption per claimant. In 2020 to 2021, both the number of estates using the exemption and the total cost of the exemption increased. In 2021 to 2022, again, both the number of estates using the exemption and the total cost of the exemption increased marginally compared to the previous year.

Distributional analysis

Table 12.2 of HMRC’s Inheritance Tax Liabilities Statistics show that in 2021 to 2022 this exemption was used by 9,780 estates above the Inheritance Tax nil rate band and £2.1 billion of qualifying property was exempted. It is important to note here that the values being relieved are not the same as the cost to the Exchequer of the relief. This is because the value of assets qualifying for the relief are not included in the chargeable estate for IHT purposes.

Had the relief not been available, the value of those assets would have been included within the chargeable estate for IHT purposes, and after the application of available tax-free allowances, would face the relevant marginal tax rate. This determines the cost of the relief to the Exchequer.

The latest available tax year for which complete information is available is 2021 to 2022, and an estate can make more than one relief claim. For more information, please see the background quality report accompanying the statistics.

Evaluative summary

The objective of this relief is to encourage charitable giving.

HMRC commissioned a report from IFF Research and the Office of Tax Simplification published a report on simplifying the design of Inheritance Tax.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.22 Inheritance Tax - transfers between spouses and civil partners

Description

Transfer of any asset to a spouse/civil partner is exempt from IHT.

Objective: to recognise the unique legal position of marriage and civil partnership.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	2,580	3,250	4,240	5,020*	4,830*	4,860*
Cost (% GDP)	0.115%	0.156%	0.18%	0.197%*	0.178%*	0.173%*
Number of claimants	21,500	24,000	21,800	-	-	-

Figure 24: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The nominal cost of the exemption of transfers on death to surviving spouses and/or civil partners showed a sharp fall in 2019 to 2020. In 2019 to 2020, the number of estates using the exemption and the total value exempted fell, resulting in a decrease in the cost of the exemption. In 2020 to 2021, the number of estates and the total estate value exempted increased, leading to an increase in the cost of the exemption. In 2021 to 2022 the number of estates and the total estate value exempted fell back slightly, resulting in a small decrease in the cost of the exemption compared to the previous year.

Distributional analysis

Table 12.2 of HMRC’s Inheritance Tax Statistics for 2021 to 2022 show that this exemption continues to be the largest exemption set against assets. In 2021 to 2022, 21,800 estates made use of this exemption, and £15.5 billion of qualifying property was exempted.

HMRC does not publish separate distributional analysis for estates using the spouse and civil partner exemption, and the exemption is a long-standing feature of the IHT system. However, in general those who benefit from this exemption are likely to be aged 65 and above at the time of their death. Also, the estate that benefits tends to be the estate of someone who is male.

This is because only married or civil partnered individuals are able to benefit from the exemption by definition, and males have shorter life expectancies than females. As such, given the majority of marriages and civil partnerships are currently between opposite-sex individuals in the UK, females have a higher probability of living longer than their male spouse or civil partner and of receiving the latter’s exempted transferred assets.

Evaluative summary

The objective of this relief is to recognise the unique legal position of marriage and civil partnership.

HMRC commissioned research on inheritance tax from IFF Research.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.23 Inheritance Tax - residence nil rate band

Description

An additional threshold when a residence is being passed on to a direct descendant.

Objective: to make it easier to pass on a family home to direct descendants without a tax charge.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	1,190	1,650	2,060	2,370*	2,240*	2,230*
Cost (% GDP)	0.053%	0.079%	0.087%	0.093%*	0.082%*	0.079%*
Number of claimants	19,200	25,200	25,800	-	-	-

Figure 25: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The residence nil rate band (RNRB) was introduced in the tax year 2017 to 2018. The nominal cost of the RNRB showed consistent growth into the 2019 to 2020 and 2020 to 2021 tax years, in line with the planned increase in the generosity of the threshold. The number of claimants increased slightly in 2019 to 2020, which only partly explains the increase in the cost of the relief. The remaining difference can be explained by the increase of the nominal value of the RNRB from £125,000 in 2018 to 2019 to £150,000 in 2019 to 2020. In 2020 to 2021, both the nominal cost and the number of claimants increased as the nominal value of the RNRB increased from £150,000 to £175,000 and the number of estates transferring qualifying wealth also rose. In 2021 to 2022, both the number of claimants and the value exempted rose when compared to the previous year. However, this was due to an overall increase in the number of estates making use of the RNRB, since the nominal value of the RNRB remained unchanged between the 2020 to 2021 and 2021 to 2022 tax years.

Distributional analysis

The tax year 2021 to 2022 was the fifth year in which the new RNRB tax-free threshold could be used. This threshold provides an additional allowance to qualifying estates so that more property wealth can be transferred to direct descendants before inheritance tax could be due. The threshold was set at £175,000 for the tax year 2021 to 2022. In the tax year 2021 to 2022, Table 12.2 of HMRC’s Inheritance Tax Liabilities Statistics show that 25,800 estates used the RNRB, and £6.5 billion of chargeable estate value was sheltered from an inheritance tax charge as a result. This was a rise of £0.4 billion compared to the tax year 2020 to 2021.

Had the threshold not been available, the value of those assets would have been included within the chargeable estate for IHT purposes, and after the application of available tax-free allowances, would face the relevant marginal tax rate. This determines the cost of the threshold to the Exchequer.

The latest available tax year for which complete information is available is 2021 to 2022, and an estate can make more than one relief claim. For more information, please see the background quality report accompanying the statistics.

Evaluative summary

The objective of this threshold is to help parents pass on the family home to their children.

The Office of Tax Simplification published a report on simplifying the design of Inheritance Tax.

Forecast information

RNRB is included in the OBR’s inheritance tax receipts forecast in the Economic and Fiscal outlook but the forecast for the cost of the RNRB is not published separately.

The original forecast costs for the RNRB were never separately published when the policy was announced in the 2015 Summer Budget. Instead, the numbers published reflected the freeze of the Nil Rate Band from the 2017 to 2018 to 2020 to 2021 tax years, the introduction of RNRB from the 2017 to 2018 tax year, and the introduction of the RNRB taper. As a result, comparing RNRB outturn costs to the forecasted impact of the published policy package would be inappropriate as the published forecast does not solely capture the original forecasted costs of the RNRB.

5.24 NICs - contributions to, and benefits from, registered pension schemes

Description

Payments by way of an employer’s contribution towards a registered pension scheme or by way of any benefit pursuant to a registered pension scheme are disregarded in the calculation of earnings for the purposes of earnings-related contributions.

Objective: to encourage employers to contribute to their workers’ pensions to provide them with an income in retirement.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	21,400	23,200	22,600	23,800	23,500*	22,100*
Cost (% GDP)	0.953%	1.113%	0.957%	0.932%	0.864%*	0.785%*
Number of claimants	-	-	-	-	-	-

Figure 26: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

The methodology used to produce these estimates aligns with that used for Table 6 of the Private pensions statistics publication. There is an accompanying quality report for the Private pension statistics publication. The forecasts for 2023 to 2024 and 2024 to 2025 have been updated to include policy changes, including the Lifetime allowance and Annual allowance changes announced at Spring Budget 2023.

Commentary on cost change over time

The estimated cost of National Insurance Contribution relief on registered pension schemes has increased from £21bn in 2019 to 2020, to £22bn in 2024 to 2025. The estimated value of relief increased in 2020 to 2021 and 2022 to 2023, however, the value of relief decreased in the years 2021 to 2022, 2023 to 2024, and 2024 to 2025. The relief consists of primary (employee) and secondary (employer) National Insurance Contributions (NICs) relief, on both employer contributions and salary sacrificed contributions.

One driver of costs during this period could be wage growth.The OBR’s labour market forecast shows strong wage growth between 2021 to 2022 and 2023 to 2024, averaging 4.6% over those 3 tax years, which could feed into higher pensions contributions and, in the absence of other changes, increase the cost of relief.

The Class 1 Primary NICs rate applied between the Primary Threshold and Upper Earnings Limit was reduced from 12% to 10% in 2023 to 2024 and then to 8% in 2024 to 2025, resulting in a decrease in the forecasted cost of NICs relief in those years.

The estimated cost of National Insurance Contribution relief on registered pension schemes as a proportion of GDP has decreased between 2019 to 2020 and 2024 to 2025.

The full methodology for Table 6 can be found in section 5.2 of the background and methodology document.

Distributional analysis

ONS workplace pensions statistics show that nearly eight in ten UK employees had a workplace pension in April 2021.

HMRC Private pension statistics (Table 6) estimate that in 2022 to 2023, Class 1 Primary National Insurance relief on contributions to defined benefit schemes accounted for 54% of National Insurance relief on contributions, the remaining 46% of relief was on contributions to defined contribution schemes.

Evaluative summary

The objective of this relief is to encourage employers to contribute to their workers’ pensions to provide them with an income in retirement.

HM Treasury published a consultation document in 2015 to seek views on whether pension tax relief should be reformed. The responses to this consultation were published in 2016.

HMRC commissioned independent research with individuals and employers on pension tax relief in 2015. The research concluded that only 41% of adults correctly believed that the government tops up people’s pension contributions through tax relief. Many people underestimated the amount of tax relief the government provided on pension contributions. Given their lack of awareness, most people were willing to consider an alternative pension tax system, although this would not necessarily change the amount they saved.

Forecast information

Forecasted relief cost figures for 2022 to 2023 and 2023 to 2024 may be revised in the 2025 private pensions publication as further outturn data becomes available. In particular, 2022 to 2023 is currently based partially on both forecasted data and outturn data; further information can be found in Table 6 of the private pension statistics publication.

5.25 NICs - employment allowance

Description

Allows eligible employers up to £2,000 off employer NICs from April 2014, up to £3,000 off from April 2016, up to £4,000 off from April 2020, and up to £5,000 off from April 2022.

Objective: to support small businesses and charities and reduce the barriers they face by reducing the costs of employment.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	2,200	2,400	2,600	3,100	3,100	3,200*
Cost (% GDP)	0.098%	0.115%	0.11%	0.121%	0.114%	0.114%*
Number of claimants	1,198,000	1,086,000	1,153,000	1,171,000	1,173,000	-

Figure 27: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of Employment Allowance has steadily increased over time. In April 2020, the allowance increased from £3,000 to £4,000 and it was also restricted to businesses who have a NICs liability of under £100,000 in the previous tax year. The former more than offset the latter resulting in an overall increase in the cost of the relief in 2020 to 2021.

The large growth in cost for 2022 to 2023 is partly due to the temporary rise in employer NICs rate, between 6th April 2022 and 5th November 2022, and partly due to the allowance increasing from £4,000 to £5,000.

Distributional analysis

HMRC’s Employment Allowance take-up statistics show that approximately 1,173,000 employers had benefitted from this relief in 2023 to 2024.

The largest three sectors accounted for 42% of claimants, with ‘Wholesale and retail trade; repair of motor vehicles and motorcycles’ being the largest at 17% (198,000). This is followed by ‘Construction’ at 13% (153,000) and ‘Professional, scientific and technical activities’ at 12% (142,000).

This report also shows that the largest three regions accounted for 42% of claimants, with London being the largest at 17% (205,000). This is followed by the South East at 14% (167,000) and the North West at 11% (123,000). Furthermore, 86% of the claimants were ‘Micro’ employers (1 to 9 employees).

Evaluative summary

HMRC commissioned research from TNS, to understand employer awareness and knowledge of the Employment Allowance, their experiences of claiming it and the impact of the allowance, published in 2015.

Forecast information

The original cost estimate period does not overlap with the period for which we publish outturn costs in this publication, therefore the two sets of figures cannot be compared.

5.26 NICs - relief on employer NICs for employees under 21

Description

A zero rate of Class 1 secondary NICs for employees under 21 up to the upper secondary threshold

Objective: to encourage employers to employ individuals under the age of 21. This also supports youth employment.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	630	560	670	850	960	1,000*
Cost (% GDP)	0.028%	0.027%	0.028%	0.033%	0.035%	0.036%*
Number of claimants	294,000	270,000	322,000	327,000	331,000	-

Figure 28: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The relief can be claimed across all sectors for all qualifying employees; therefore, trends reflect general employment and wage patterns, rather than linking to any specific sector. The decrease in 2020 to 2021 was likely due to COVID-19, before returning to trend in 2021 to 2022.

Evaluative summary

HMRC commissioned research from Kantar to evaluate employer NICs reliefs, assessing whether NICs reliefs were supporting and encouraging the employment and retention of young people and apprentices, published in 2023. Previous research from Kantar was published in 2018.

Forecast information

The original cost estimate period does not overlap with the period for which we publish outturn costs in this publication, therefore the two sets of figures cannot be compared.

5.27 Stamp Duty Land Tax - first time buyers relief

Description

Relief from SDLT for first time buyers (as defined) of purchases of residential property for £500,000 or less (£625,000 or less from 23 September 2022), provided the purchaser intends to occupy the property as their only or main residence. The relief applies to purchases from 22 November 2017.

Objective: to support home ownership by reducing the upfront cost of buying a home for first time buyers.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	540	90	370	710	540	650*
Cost (% GDP)	0.024%	0.004%	0.016%	0.028%	0.02%	0.023%*
Number of claimants	222,700	36,900	151,900	203,600	113,100	-

Figure 29: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of First Time Buyers’ Relief (FTBR) decreased sharply in 2020 to 2021 due to COVID-19 and the introduction of the Stamp Duty Land Tax holiday between July 2020 to September 2021. Following this there was a partial rebound in the amount of relief claims and the amounts relieved in 2021 to 2022.

Higher thresholds for this relief (now no tax payable on up to the first £425,000 of the purchase price) were introduced on 23 September 2022 and are due to be lowered to the previous thresholds on 31 March 2025. This had the effect of increasing the value of this relief in 2022 to 2023, however this was partly counteracted by the effect of a higher nil-rate band resulting from changes introduced on the same date.

The drop in the cost in 2023 to 2024 and the rebound expected in 2024 to 2025 reflects wider trends in property transactions.

Distributional analysis

Distributional analysis will be available in HMRC’s Annual Stamp Tax statistics (Table 6d) which will be reported in December 2024.

Evaluative summary

The objective of this relief is to support home ownership by reducing the upfront cost of buying a home for first-time buyers. HMRC published an evaluation of the impact of the relief in May 2023.

A similar, temporary, relief was introduced in March 2010 (covering homes between £125,001 and £250,000), detailed in analysis by HMRC.

Forecast information

See the Comparison of forecast costs to outturn section for this information.

5.28 VAT - construction and sale of new dwellings (includes refunds to DIY builders)

Description

Zero rating of construction and sale of new relevant residential and relevant charitable buildings.

Objective: to incentivise the construction of new homes.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	16,000	14,500	15,900	16,600	16,000*	15,900*
Cost (% GDP)	0.713%	0.695%	0.673%	0.65%	0.588%*	0.565%*
Number of claimants	-	-	-	-	-	-

Figure 30: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of this relief is driven by the number and average value of houses built. According to Office for National Statistics (ONS) data, the average new dwelling price increased by 4% between 2019 to 2020 and 2023 to 2024. The number of permanent dwellings completed in England increased by 10% in 2021 to 2022 according to statistics from the Department of Levelling Up, Housing and Communities, with activity recovering from the adverse impact of COVID-19. This recovery did not continue in 2022 to 2023.

As the construction and sale of new dwellings makes up most of the relief, these changes are the main causes of cost changes over time.

Distributional analysis

The ONS House price datasets (Table 11) show that for the year ended March 2024 the average price for newly built dwellings in the United Kingdom was £320,000 compared to £330,000 for other dwellings.

The ONS Construction annual tables (3.3 and 3.6) show that in 2022, the construction industry in Great Britain was made up of around 375,000 firms and employed around 1.44 million workers.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.29 VAT - domestic fuel and power

Description

Reduced rate of VAT on supplies of domestic fuel and power.

Objective: to reduce costs for individuals on their energy bills.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	4,900	4,900	5,500	8,900	8,000	6,500*
Cost (% GDP)	0.218%	0.235%	0.233%	0.349%	0.294%	0.231%*
Number of claimants	-	-	-	-	-	-

Figure 31: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of the reduced rate for domestic fuel and power remained relatively stable up to 2021 to 2022. Variations in individual years were mainly a reflection of fluctuating energy prices charged by suppliers. The increase in 2022 to 2023 reflects the increase in the Ofgem Default Tariff Cap and the government’s Energy Price Guarantee introduced from 1 October 2022. In 2023 to 2024 continued operation of the Guarantee until 30 June 2023 and the Cap thereafter meant the level remained high but begins to fall following the gradual normalisation of energy prices. The reduction in the forecast for 2024 to 2025 reflects this continuing normalisation.

Distributional analysis

ONS statistics (tables 3.1.4.4 and 3.2.4.4) show that, on average, expenditure on fuel and power by people living in households that are further down the income distribution is larger as a proportion of their total expenditure. However, higher income deciles spend more on fuel and power in absolute terms.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.30 VAT - domestic passenger transport

Description

Zero rating applies to the transport of passengers where the mode of transport takes more than 10 passengers, by Post Bus or on the UK portion of scheduled flights.

Objective: to incentivise passengers to use high-capacity public transport services such as bus, train, ship and aircraft.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	5,200	2,200	3,600	4,800	5,000	5,100*
Cost (% GDP)	0.232%	0.106%	0.152%	0.188%	0.184%	0.181%*
Number of claimants	-	-	-	-	-	-

Figure 32: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The nominal cost of the zero rate for domestic passenger transport rose slightly in 2019 to 2020 reflecting increases in fare prices, and growth in passenger journeys (partly the result of population growth). The estimate for 2020 to 2021 reflects the sharp reduction in use of public transport during COVID-19. There was a partial recovery in 2021-22 and 2022-23. In 2023 to 2024 and the 2024 to 2025 forecast the estimate recovers to 2019 to 2020 levels but is still lower as a % of GDP.

Distributional analysis

ONS statistics (tables 3.1.7.3 and 3.2.7.3) show that average household spend on transport services increases with income decile, both as a proportion of household expenditure and in monetary terms.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.31 VAT - drugs and supplies on prescription

Description

Zero rating applies to drugs dispensed by a pharmacist for personal use.

Objective: to contribute to healthcare costs by ensuring no VAT is charged on the dispensing of medicinal items on prescription by pharmacies to individuals.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	3,100	3,200	3,200	3,400*	3,600*	3,700*
Cost (% GDP)	0.138%	0.153%	0.135%	0.133%*	0.132%*	0.131%*
Number of claimants	-	-	-	-	-	-

Figure 33: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of drugs and supplies on prescription has gradually increased in nominal terms but has fallen slightly as a proportion of GDP except when this ratio was distorted by the coronavirus (COVID-19) pandemic.

Distributional analysis

NHS England’s prescription cost analysis (Additional tables A4) shows that in 2023 to 2024, 95.42% of prescription items dispensed in the community were free of charge. However, where the prescription is free of charge, the relief still has a cost as it includes the cost to the NHS of the prescription.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.32 VAT - food

Description

Zero rating of most food (including cold food for takeaway).

Objective: to reduce the cost for most food and drink which is meant for human consumption.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	20,000	20,300	20,900	22,900	25,100	25,600*
Cost (% GDP)	0.891%	0.974%	0.885%	0.897%	0.923%	0.909%*
Number of claimants	-	-	-	-	-	-

Figure 34: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of the relief has risen gradually in nominal terms, including during the COVID-19 period in 2020 to 2021 as consumers maintained expenditure on food purchases, and even increased expenditure during the closure of much of the hospitality sector. As a proportion of GDP, the cost has remained broadly static except during COVID-19 in 2020 to 2021 when expenditure on food did not follow the downturn of the wider economy. Inflationary pressures, which have been greater for food, increased the nominal cost of the relief in recent years.

Distributional analysis

ONS statistics (tables 3.1.1.1 and 3.2.1.1) show that people living in households with lower incomes spend more on food as a proportion of total expenditure. However, higher income deciles spend more on food in absolute terms.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.33 VAT - the VAT zero rate for children’s clothing and protective footwear and helmets

Description

Zero rating of children’s clothing and footwear and protective boots and helmets (including motorcycle and bicycle helmets).

Objective: to support families by reducing the cost of children’s clothing and encourage occupational and road health and safety by reducing the cost of protective equipment.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	1,900	1,500	1,800	2,000	2,100	2,200
Cost (% GDP)	0.085%	0.072%	0.076%	0.078%	0.077%	0.078%
Number of claimants	-	-	-	-	-	-

Figure 35: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The nominal annual cost of the relief for children’s clothing was fairly stable with the cost as a share of GDP falling slightly, until the onset of COVID-19. In the pandemic, expenditure on children’s clothing fell in nominal terms, but then recovered in 2021 to 2022. In 2022 to 2023 and 2023 to 2024 the nominal cost rose with increased expenditure on clothing due to inflation but was little changed as a proportion of GDP. The forecast for 2024 to 2025 expects this pattern to continue.

Distributional analysis

ONS statistics (tables 3.1.3.1 and 3.2.3.1) show that, on average, household spending on children’s clothing as a proportion of total household expenditure is relatively flat across the income distribution. However, the amount of money spent on children’s clothing by higher income deciles is typically higher.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.34 VAT - VAT registration threshold

Description

Exception from compulsory registration for VAT for traders with taxable supplies below the registration threshold.

Objective: to reduce administrative burdens by keeping businesses operating below the VAT registration threshold, that do not wish to register for VAT, out of the VAT system altogether.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	3,000	2,600	3,200	2,900	2,900*	3,000*
Cost (% GDP)	0.134%	0.125%	0.135%	0.114%	0.107%*	0.107%*
Number of claimants	-	-	-	-	-	-

Figure 36: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

From 2019 to 2020 to 2023 to 2024 the VAT registration threshold was frozen rather than being increased in line with the Retail Prices Index (measures announced at Autumn Budget 2017, Budget 2018 and Spring Budget 2021). This has had the effect of drawing more businesses into VAT registration, thereby reducing the cost of the relief. In 2020 to 2021 there was a reduction in the cost of the relief due to a reduction in the number of businesses operating at below the threshold and a reduction in their income, but the cost rises in subsequent years given recovery following the pandemic. The threshold freeze had a larger downward effect on cost in 2022 to 2023 and 2023 to 2024 due to rising inflation. For 2024 to 2025 the VAT registration threshold was increased from £85,000 to £90,000; this increases the estimate of the cost of the relief.

Distributional analysis

Department for Business and Trade statistics state that the number of businesses (whole economy) at the start of 2024 was 5.6 million. HMRC statistics (see [table 2 in VAT annual statistics])(https://assets.publishing.service.gov.uk/media/65575a0d046ed400148b9acf/Annual_UK_VAT_Statistics_2022-23.ods) show that 2.3 million businesses were registered for VAT at this point. This indicates that there were around 3.3 million businesses that were not registered for VAT, as a result of this relief. In 2023 to 2024 some 42% (0.9 million) of VAT registered businesses had turnover below the registration threshold (see Table 5a in VAT annual statistics). These businesses are not required to register as a result of the relief, but have opted to register voluntarily.

Evaluative summary

The objective of this relief is to reduce administrative burdens by keeping businesses operating below the VAT registration threshold, that do not wish to register for VAT, out of the VAT system altogether.

HM Treasury published a consultation document in 2018 to explore the VAT registration threshold. The responses to the consultation were also published.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.35 VAT - vehicles and other supplies to disabled people [vehicles only]

Description

Zero rating of certain aids and qualifying motor vehicles to the disabled.

Objective: to assist disabled people, with the additional costs associated with purchasing specialist items, or adapting items, to aid them with their disability, a wide range of goods and services are zero rated.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	840	850	920	1,020	1,210	1,210*
Cost (% GDP)	0.037%	0.041%	0.039%	0.04%	0.044%	0.043%*
Number of claimants	-	-	-	-	-	-

Figure 37: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The nominal cost of vehicles supplied to disabled people tax relief has risen slightly over time, with the cost as a share of GDP remaining broadly stable but marginally increasing in more recent years.

Distributional analysis

The cost of this relief includes the VAT zero rating of leases of cars through the Motability scheme and the sale of the cars at the end of the leases. A 2018 NAO report into the Motability scheme reviewed the tax concessions provided by the government which include the VAT zero rating, and the impact of this on lease prices offered by Motability.

Evaluative summary

The objective of this relief is to assist disabled people with the additional costs associated with purchasing specialist items, or adapting items, to aid them with their disability, a wide range of goods and services are zero rated.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.36 VAT - water and sewerage services

Description

Zero rating applies to the supply of sewerage services and water (otherwise than for use in an industrial business activity).

Objective: to contribute to access to clean water through relieving individuals from VAT on the supply of water and sewage services including disposal for all except those involved in an industrial activity.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	2,300	2,400	2,300	2,400	2,700	2,800*
Cost (% GDP)	0.102%	0.115%	0.097%	0.094%	0.099%	0.099%*
Number of claimants	-	-	-	-	-	-

Figure 38: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

During this period the nominal cost of the water and sewerage services tax relief has increased, though the cost as a share of GDP has remained broadly flat (except in 2020-21 when this ratio was distorted by the impact of COVID-19 on GDP). The cost of the relief is driven by (regulated) water prices, and to a lesser extent by population growth.

Distributional analysis

ONS statistics (tables 3.1.4.3 and 3.2.4.3) show that spending on water supply as a proportion of income is higher for people living in households with lower incomes as a proportion of total expenditure. However, the amount of money spent on water supply by those living in households further up the income distribution is higher.

ONS statistics (table A35.4.3) show that average weekly spend on water supply is highest in London and the South West, when compared to other UK regions.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

5.37 VAT - zero rate for printed matter and e-publications

Description

Zero rating applies to supplies of books, newspapers, magazines etc. in printed form and when supplied electronically.

Objective: to support literacy and reading by reducing the cost of books, newspapers, magazines etc. in printed and electronic form.

Tax year	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Cost (£ million)	1,800	1,600	1,800	1,800	1,800	1,900*
Cost (% GDP)	0.08%	0.077%	0.076%	0.071%	0.066%	0.067%*
Number of claimants	-	-	-	-	-	-

Figure 39: nominal annual cost (£ million) and cost as a share of GDP (%)

The information in the chart is represented in the preceding table.

Commentary on cost change over time

The cost of this relief has remained broadly static in nominal terms but has been falling as a proportion of GDP. The cost estimates reflect the extension of the relief to e-publications with effect from 1 May 2020, which adds approximately £200 million to the cost in a full year. However, consumption was generally weak in 2020 to 2021 because of COVID-19, offsetting the increase in cost due to the change of policy in that year.

Distributional analysis

ONS statistics (tables 3.1.9.5 and 3.2.9.5) show that, on average, expenditure on newspapers and magazines by people living in households with lower incomes is larger as a proportion of their total household expenditure. On average, spending on books as a proportion of total expenditure is relatively flat across the income distribution. However, higher income deciles spend more on these items in absolute terms.

Forecast information

Original cost estimates predate HMRC’s official publications of costs of reliefs.

6. Monitoring the outturn cost of tax reliefs

Since 2019, we have made significant progress towards estimating a cost for all non-structural tax reliefs. We are also working to improve our monitoring of these costs through time, as recommended by the NAO.

The NAO January 2024 report recommended that: HMRC should improve the transparency of relief costs by committing to provide comparisons of forecast and outturn costs compiled on the same basis. This should also inform internal reporting and analysis:

a. HMRC should report where tax reliefs greatly exceed the initial expected costs

b. HMRC should investigate differences, using robust evidence to form conclusions

This section sets out two approaches to monitoring where the costs of tax reliefs are different to the expected costs, one approach we have been using for some time and a second approach which is new in this publication.

As well as comparing the outturn to forecasts HMRC regularly evaluates tax relief HMRC published a tax relief evaluation plan in December 2021 and updated a list of planned evaluations in April 2023.

6.1 Our monitoring approach

We regularly publish comparisons of the announced policy costs of a tax relief (the policy costing) to estimated outturns. This comparison is not available for all reliefs, as we do not have announced policy costs for many reliefs.

For the first time, this year we are publishing comparisons of our estimated outturns to the forecasts published in the previous version of this publication.

6.2 Estimating Outturns

A forecast is an estimation of the future. Outturn is an observation of the past. With tax reliefs often we cannot observe the outturn. Instead, we use data from a variety of sources to produce an estimated outturn cost of tax reliefs.

The reason that we do not directly measure the cost of many tax reliefs is that tax reliefs reduce, or remove, the requirement to pay taxes. To minimise the burden on customers, in many cases, customers do not have to inform HMRC that they are using a tax relief. For instance, customers renting a furnished room in their main home pay no tax if the gross rents do not exceed £7,500 a year. They also do not have to inform HMRC that they are renting the room unless they have other property income.

Such conditions reduce the need to interact with HMRC, encourage economic activity, and reduce potential for accidental non-compliance. However, minimising reporting also makes observing the cost difficult, so HMRC must estimate the cost.

7. Comparison of forecasts in policy costings with estimated outturn

This section shows comparisons of the estimated outturn costs of tax reliefs with the cost that was published when the policy was announced. This is updated analysis of information we have been publishing for several years. We have focused on non-structural tax reliefs which have been announced since the introduction of the OBR in 2010. This analysis is available for the following 8 reliefs:

Table 7: Table of reliefs with announcment forecast vs outturn analysis within this publication

Tax head	Relief
Corporation Tax	Television Tax Relief (Children’s)
Corporation Tax	Orchestra Tax Relief
Corporation Tax	Museums and Galleries exhibition tax relief (MGETR)
Income Tax	Social Investment Tax Relief (SITR) - income tax relief
NICs	Relief on employer National Insurance contributions for veterans
NICs	Relief on employer National Insurance contributions for freeport employees
Stamp Duty Land Tax	First Time Buyers Relief
NICs	Relief on employer National Insurance contributions for apprentices under 25

7.1 Policy costings

At each fiscal event, the Government publishes a set of Policy Costings. More detail on this process can be found in OBR’s briefing paper: Policy Costings and our Forecast.

While we can, and do, compare forecasts published in Policy Costings to estimated outturn where possible, there are several important differences between Policy Costings and the outturn Tax Relief Cost Estimates shown in this publication:

1. Policy basis: Fiscal Event Policy Costings reflect Government policy at the time of announcement, however the policy may change, for example following consultation.

2. Forecast basis: Fiscal Event Policy Costings will reflect the OBR’s forecast and judgements at the time of the fiscal event. Cost Estimates in this publication will reflect the latest OBR forecast.

Links to costing notes published at the fiscal events when these reliefs were introduced are provided, which show the original forecast numbers and explain the costing methodology. It is difficult to compare the costs of all tax reliefs with published government forecasts for a number of reasons:

• original projections cover a maximum of five years and might not overlap with the period covered in this publication
• cost forecasts published at Budget often represent the cost of policy changes to reliefs rather than the whole cost of a relief
• wider economic changes and technological developments affect the outturn cost of the relief and are unforeseeable when they are announced
• the forecast cost of some reliefs are estimated as a package along with other changes, and cannot be isolated

7.2 First time buyers relief

Description

Relief from SDLT for first time buyers (as defined) of purchases of residential property for £500,000 or less (£625,000 or less from 23 September 2022), provided the purchaser intends to occupy the property as their only or main residence. The relief applies to purchases from 22 November 2017.

Metric	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Forecast cost (£ million)	585	610	640	670	-	-
Cost Estimate (£ million)	540	90	370	710	-	-
Difference (£ million)	-45	-520	-270	40	-	-
Percentage difference	-8%	-85%	-42%	6%	-	-

Commentary on differences between outturn cost and original forecast

The outturn is relatively close to the forecast for 2018 to 2019 and 2019 to 2020. In 2020 to 2021 the SDLT holiday was introduced which meant that there was no tax payable on purchases below £500,000 and First Time Buyers relief did not apply between 8th July 2020 and 30th June 2021. From 1st July 2021 up to 30th September 2021 and from 23rd September 2022 onwards, there was no tax payable on the first £250,000 of the purchase price so relief claims would have been limited during these periods. The cost of the relief in 2020 to 2021 and 2021 to 2022 is therefore much lower than originally forecast.

The revised higher thresholds for this relief (now no tax payable on up to the first £425,000 of the purchase price) that were introduced on 23 September 2022 has had the effect of increasing the value of this relief in 2022 to 2023. However, this is counteracted by the effect of a higher nil-rate band resulting from changes introduced on the same date and resulted in a 2022-23 projection below forecast.

See the policy costing for more information.

7.3 Relief on employer national insurance contributions for apprentices under 25

Description

A zero rate of Class 1 secondary NICs for apprentices under 25 up to the apprentice upper secondary threshold

Metric	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Forecast cost (£ million)	125	-	-	-	-	-
Cost Estimate (£ million)	190	-	-	-	-	-
Difference (£ million)	65	-	-	-	-	-
Percentage difference	55%	-	-	-	-	-

Commentary on differences between outturn cost and original forecast

The outturn cost is higher than the forecast. The original forecast was based on a 1% sample of employee jobs from the Annual Survey of Hours and Earnings for 2013 and BIS apprenticeship data. The outturn is estimated using a near-complete view of employees and their monthly wages from HMRC’s Real Time Information. There is a higher number of apprenticeships being claimed for than the original number of individuals that were expected to be affected.

Since 2013 there have been changes in Office for Budget Responsibility (OBR) determinants (economic projections) which would affect costs, including the number of relevant employments and wages (see March 2023 Economic and fiscal outlook – supplementary economy tables).

See the policy costing for more information.

7.4 Television tax relief (children’s)

Description

Television production companies can claim additional corporation tax relief on producing children’s programmes in the UK. Companies not making a profit may be able to surrender the loss and receive a tax credit.

Metric	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Forecast cost (£ million)	5	-	-	-	-	-
Cost Estimate (£ million)	25	-	-	-	-	-
Difference (£ million)	20	-	-	-	-	-
Percentage difference	400%	-	-	-	-	-

Commentary on differences between outturn cost and original forecast

The cost estimates provided above are on a cash basis (rather than the accruals figures in the published tables), to be more comparable to the forecast cost. The outturn cost has been consistently above forecast since 2017 to 2018. Take-up of the relief has been higher than originally anticipated.

See the policy costing for more information.

7.5 Orchestra tax relief

Description

Orchestra companies can claim additional corporation tax relief for UK or EEA expenditure incurred on producing orchestral concerts. Companies not making a profit may be able to surrender the loss and receive a tax credit.

Metric	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Forecast cost (£ million)	10	-	-	-	-	-
Cost Estimate (£ million)	20	-	-	-	-	-
Difference (£ million)	10	-	-	-	-	-
Percentage difference	100%	-	-	-	-	-

Commentary on differences between outturn cost and original forecast

The cost estimates provided above are on a cash basis (rather than the accruals figures in the published tables), to be more comparable to the forecast cost. The outturn cost was above forecast in 2018 to 2019 and 2019 to 2020. Take-up of the relief has been slightly higher than originally anticipated in these years.

See the policy costing for more information.

7.6 Museums and galleries exhibition tax relief (MGETR)

Description

Charitable museum companies can claim additional corporation tax relief for UK or European Economic Area (EEA) expenditure incurred on producing exhibitions. Companies not making a profit may be able to surrender the loss and receive a payable tax credit.

Metric	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Forecast cost (£ million)	30	30	30	-	-	-
Cost Estimate (£ million)	15	15	10	-	-	-
Difference (£ million)	-15	-15	-20	-	-	-
Percentage difference	-50%	-50%	-67%	-	-	-

Commentary on differences between outturn cost and original forecast

The cost estimates provided above are on a cash basis (rather than the accruals figures in the published tables), to be more comparable to the forecast cost. Outturn cost is consistently below forecast. Take-up of the relief has grown more slowly than originally anticipated.

See the policy costing for more information.

7.7 Social investment tax relief (SITR) - Income Tax relief

Description

Tax relief against the income tax liability for individuals of 30% of the amounts invested in newly issued holdings in qualifying social enterprises. The maximum amount invested in social enterprises on which relief can be claimed is £1 million. SITR was first announced in the Autumn Statement in 2013, and introduced in Finance Act 2014.

Metric	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Forecast cost (£ million)	45	-	-	-	-	-
Cost Estimate (£ million)	Negligible	-	-	-	-	-
Difference (£ million)	40	-	-	-	-	-
Percentage difference	89%	-	-	-	-	-

Commentary on differences between outturn cost and original forecast

The cost estimates are very low. Estimates which round to £3 million or less are classed as ‘negligible’, so here the difference and percentage difference have been calculated assuming the cost estimate were £3 million to provide indicative differences. The income tax cost of the Social Investment Tax Relief (SITR) scheme has been consistently lower than originally forecast, reflecting much lower take up of the scheme than originally assumed.

7.8 Relief on employer national insurance contributions for veterans

Description

A zero rate of Class 1 secondary NICs for veterans up to the veterans upper secondary threshold

Metric	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Forecast cost (£ million)	-	-	15	20	25	25
Cost Estimate (£ million)	-	-	-	Negligible	5	5
Difference (£ million)	-	-	-	-20	-20	-20
Percentage difference	-	-	-	-90%	-86%	-86%

Commentary on differences between outturn cost and original forecast

The outturn cost is consistently lower than the forecast. The outturn is estimated using a near-complete view of employees and their monthly wages from HMRC’s Real Time Information. There is a lower number of service leavers being claimed for than the original number of individuals that were expected to take up the relief. Cost estimates for 2021-22 are not available.

7.9 Relief on employer national insurance contributions for freeport employees

Description

A zero rate of Class 1 secondary NICs for freeport employees up to the freeports upper secondary threshold

Metric	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Forecast cost (£ million)	-	-	-	5	10	20
Cost Estimate (£ million)	-	-	-	Negligible	Negligible	10
Difference (£ million)	-	-	-	-5	-10	-10
Percentage difference	-	-	-	-83%	-72%	-52%

Commentary on differences between outturn cost and original forecast

The outturn cost is consistently lower than the forecast. The outturn is estimated using a near-complete view of employees and their monthly wages from HMRC’s Real Time Information. There is a lower number of employees being claimed for than the original number of individuals that were expected to take up the relief. Freeports site were designated later than expected resulting in a delay to the costs.

8. Comparing our tax relief cost forecasts against estimated outturn

Each tax reliefs publication includes forecasted cost estimates for the following tax year. In December 2023, we published non-negligible forecasted costs for the 2023 to 2024 tax year for 85 non-structural tax reliefs. This section, which we are including for the first time, evaluates how these forecast costs compare to the estimated outturn costing for 2023 to 2024 presented in this year’s publication.

As we are part way through the 2023 to 2024 tax year, we have more data for some reliefs and adjust our estimated outturn costs accordingly. However, the tax year is not over meaning even for reliefs with reported use we do not have observed outturn data.

Table 8 shows the percentage difference from our December 2023 forecast to our December 2024 estimated outturn costings. The difference is expressed as a percentage of the December 2023 forecast. For example, if a forecast were 100, and the estimated outturn 110, the percentage difference would be 10%.

Table 8: Percentage difference from our forecast to our estimated outturn costings for tax year: 2023 to 2024

Difference: Forecast to Estimated Outturn	Count
50% less than expected or lower	3
Between 25 and 50% less than expected	5
Between 5 and 25% less than expected	21
Within 5% of expectation	26
Between 5 and 25% more than expected	19
Between 25 and 50% more than expected	6
50% more than expected or higher	4

Note: One estimated outturn has rounded to negligible and is excluded from the above table.

As discussed, for most reliefs the forecast at last publication differs little from the estimated outturn in this publication. More significant differences between forecast and estimated outturn often partly reflect wider economic factors.