Is Downing Street really planning to abolish inheritance tax?
“I despair.” Said Paul Johnson who writes for The Times on the recent debate around abolishing inheritance tax.
[Originally published in The Times on 17 July 2023]
He continues: “There was speculation published on the front page of this newspaper on Saturday that the government is considering abolishing inheritance tax as a pre-election giveaway.
If this has any basis in truth, one wonders what is the point of all the work done by the Office for Budget Responsibility (OBR), which set out on Thursday in the starkest of terms the severe fiscal challenges that face us.”
This was published shortly before the so-called ‘silly season’ (Parliament’s summer recess) got underway. Several newspapers carried stories that Downing Street was considering the abolition of inheritance tax (IHT) in an attempt to appeal to certain voters.
The speculation did not last for long, before the Uxbridge by-election result shifted the debate towards environmental concerns instead. However, it seems likely that the question of culling IHT will re-emerge as we head towards the next general election.
Whether it is Rachel Reeves or Jeremy Hunt occupying 11 Downing Street after the election, either will have an unenviable task.
Let us know what you think – Reeves or Hunt. Just click HERE and send the contact form saying who might be in the seat quite soon.
In the meantime let’s take a look at the upward march of Inheritance Tax (IHT)
As the graph shows, receipts from IHT have more than doubled in the last ten years to over £7 billion. That growth has been aided by a combination of a nil rate band frozen at £325,000 since 2009 and, in recent times, rampant inflation. Even the introduction of the residence nil rate band in 2017/18 (now frozen at £175,000 until April 2028) made little impression on the upward march of IHT revenue.
Inheritance tax is nothing new: it has existed in some form in the UK since 1780, the three most recent versions being estate duty (1894-1975), capital transfer tax (1975-1986) and inheritance tax (1986 to date). From the Treasury’s viewpoint, IHT, like its predecessors, is a particularly efficient tax. The number of estates that paid IHT in 2020/21 (HMRC’s latest statistics) is 27,000, with the average tax liability being £214,000.
[If you would like to read more about IHT from impartial source, please visit ‘MoneyHelper’ HERE.]
Given the current state of government finances, were IHT to be axed, then compensating for the lost income would entail adding about 1p extra on the basic rate of income tax or 4p on the higher rate.
Alternatively, the standard VAT rate would need to go up to about 21%. If you compare how many people would be affected by such changes against the number who would benefit from the end of inheritance tax, the politics would seem to point towards continuing that 300-year plus tradition of estate taxes.
Personal Financial Issues
IHT considerations is just one of a number of financial issues to be considered when making a strategic financial plan. Even if you think this doesn’t affect you, there are many others that undoubtedly will.
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Tax treatment varies according to individual circumstances and is subject to change.
The Financial Conduct Authority does not regulate tax advice or inheritance tax planning.