23 September 2023
If you are covering reports in The Times that Rishi Sunak is planning to slash inheritance tax, please see the following comment from Rachael Griffin, tax and financial planning expert at Quilter:
"Reports of discussions around the potential cut and even eventual abolishment of inheritance tax (IHT) by Rishi Sunak are to be expected as the Conservatives test the water on how to drum up support ahead of the Autumn Statement and an election next year that many believe they are set to lose.
"A promise of the reducing or even eliminating one of the most hated taxes in Britain and one many perceive as inherently unfair will be music to many voters’ ears. While most Britons do not suffer IHT, there are many more middle-income earners, particularly in the south east of England, being caught by it due to property price growth and inheritance tax thresholds which remain frozen until 2027/28.
"However, amidst the crowd-pleasing announcements, there will likely be a sting in the tail. Britain’s finances are not looking on a particularly sure footing and the revenue generated from IHT is set to reach a record £8 billion this year. Last week IHT receipts from April to August 2023 came in at £3.2bn, £0.3bn higher than the same period last year and well on course to beat the £7.1bn added to government coffers last tax year.
"While it is not a huge generator of Treasury revenue, IHT is playing an increasingly significant role in the UK's economic framework. As the government navigates the tightrope of public approval and fiscal responsibility, abolishing this revenue source altogether will create a fiscal hole that needs to be filled. The answer might just as unpalatable to people and those calling for IHT to be completely scrapped may need to be careful what they wish for as it opens the door to new kinds of wealth taxes under a future government.
"The Tory’s inherent challenge here is to strike a balance between appeasing the sentiment of enough voters while not over promising IHT reform can be seen as an aspirational offer to voters, but it's also very easy to frame IHT reform as a giveaway to the wealthy, meaning it represents something of a political gamble. Opting for a sliding scale of IHT based on estate could prevent this perception so that total abolition isn’t simply seen favouring the rich however this might not be enough to appease core Tory voters.
"Increasing the nil rate band to £500,000 and £1 million for married couples would be relatively straightforward. It could be accompanied by the removal of the residence nil rate band, as it is complex, and favours married households only. The Government could also look at simply lowering the headline rate of 40%. A 20% rate alongside the removal of many of the available exemptions available would be sensible and help to simplify IHT.
"The government should also review and increase gifting allowances to bring them in line with the cost of living in 2023."
