Could the end of Inheritance Tax be imminent?
Inheritance Tax (IHT) is a tax levied on the estates of people who have died, normally at a rate of 40%. Whilst just one in 20 estates are subject to IHT, this number actually used to be far lower. The threshold for the tax has been frozen at £325,000 since the 2009/10 financial year; in the subsequent decade, rising house prices (and more recently, rampant inflation) have dragged many more estates over the IHT threshold. Between April 2022 and February 2023, HMRC raised £7.1 billion from IHT – £1 billion more than the previous year.
So, we can see that IHT is a tax that raises billions for the Treasury each year. But in recent months, there has been increasing media speculation regarding the Conservative government’s plans to make the scrapping of IHT a manifesto pledge in a bid to win the 2025 general election. It’s a bold move – but it could be a popular one, given how difficult IHT makes it for affluent families to pass on their hard-earned wealth to future generations.
But how realistic is this really – and what would we do without IHT?
A £7 billion per year policy?
At a time of economic crisis, with inflation continuing to bite and ever more strident calls for heavy government investment in a range of public services, could the government really afford to lose £7 billion (or potentially more) each year?
Certainly not at the moment, according to the government. The scrapping of IHT would very much be something to be accomplished in the future, were the Conservative Party to win the 2025 election. In fact, a source from No 10 has admitted to The Times: “This kind of future-scoping speculation just isn’t on [Rishi Sunak’s] mind at the moment and requires a different kind of economic environment to the one we are operating in.” Whatever happens to the tax, change certainly isn’t imminent.
But, even if the Conservatives were to win another term in office and the economic situation were to improve drastically, how could that kind of hole in the public finances ever be filled?
What would we do without IHT?
Not all countries in the world have an Inheritance Tax system. However, those that don’t will usually make up for it with taxes in other places or other ways of raising public funds.
For example, death duties were abolished across Australia in the late 1970s and early 1980s. But that doesn’t mean that beneficiaries have no tax obligations at all when it comes to inherited assets. They will usually have to pay Capital Gains Tax if they dispose of an asset they inherited, or income tax on rental or other income generated by the estate.
Norway doesn’t have death duties either; instead, it levies a yearly ‘wealth tax’ on each citizen’s net wealth at the end of each calendar year. This includes money in the bank, investments, cars and property.
It’s vital to continue protecting your wealth
What will happen to the Inheritance Tax system remains uncertain, and there are definitely no guarantees that it will be abolished or even reformed. Therefore, we very much encourage you to continue being proactive about protecting your wealth and take steps to minimise your IHT liability, ensuring you can pass as much of your hard-earned wealth as possible on to future generations.
As specialist private wealth lawyers, we can assist you with the accumulation, management and transfer of your private wealth across your lifetime. If you are concerned about your IHT liability, our team of experts is on hand to help. Simply contact us on 0330 221 8855 or email email@example.com