The discussion surrounding inheritance tax has ignited passionate debates for years, with calls to reform or eliminate it entirely. The latest buzz suggests that the government is pondering significant changes, which could be unveiled in the next Spring Budget. Rishi Sunak is reportedly eyeing a reduction of the 40% inheritance tax rate as the first step toward a potential complete abolition down the road.
Such a move would undoubtedly make headlines, especially in the lead-up to a general election. While this tax currently affects less than 4% of the population, rapidly growing wealth among older individuals might push that number to over 7% by 2032-33.
The burning question is, how would scrapping inheritance tax affect you? A recent study by the Institute for Fiscal Studies reveals that abolishing this tax would result in an average tax cut of approximately £1.1 million for the wealthiest 1% of the population, those with estates valued at least £2.1 million.
While this tax cut would likely please those in the top 1%, it could pose political challenges for Rishi Sunak. As the public grapples with issues like high inflation and public sector worker strikes, a tax break for the affluent might not sit well with everyone. According to a poll commissioned by the Trades Union Congress (TUC), only 20% of respondents support an inheritance tax reduction, with 60% favouring the current system or an increase.
Paul Nowak, General Secretary of the TUC, emphasises the potential consequences, stating, "Abolishing inheritance tax would be a huge tax cut for a very small, very wealthy minority and drain £7 billion from the public purse each year. It's no surprise that a clear majority of the public oppose lower inheritance tax thresholds and instead want the wealthiest to pay their fair share."
David Sturrock, a Senior Research Economist at IFS, acknowledges the valid arguments on both sides of the inheritance tax debate. He emphasises the need to address issues in the existing system as inheritances grow. Sturrock suggests that the government should reconsider special treatment for business assets, specific shares, agricultural assets, pensions, and homes passed to direct descendants. These exemptions and reliefs can lead to tax avoidance, with reform potentially generating up to £4.5 billion in additional revenue.
What unfolds in the Chancellor's Budget in March remains uncertain, but these proposed inheritance tax changes may well kick off the next general election, potentially taking place shortly after the Chancellor's announcement.
Whatever the outcome, we are here to guide you through this intricate system, giving you control over your assets and estate planning. If you have questions about mitigating your inheritance tax liability, don't hesitate to reach out to our expert team. We're ready to assist you in securing your financial future.
Sources
https://www.theguardian.com/money/2023/sep/24/sunak-considering-inheritance-tax-cut
https://ifs.org.uk/news/wealthiest-1-would-get-half-benefit-scrapping-inheritance-tax-average-tax-cut-ps1-million
https://www.independent.co.uk/news/uk/government-trades-union-congress-rishi-sunak-nhs-liz-truss-b2419926.html
