Inheritance Tax is back on the chancellor’s list
Scrapping Inheritance Tax (IHT) is back on the Cabinet table, with reports that Prime Minister Rishi Sunak is considering the move as he looks towards this year’s general election.
There are now strong suggestions that the tax is in chancellor Jeremy Hunt’s sights again, ahead of the spring Budget, which will take place on March 6.
Political pundits believe it may well be the final opportunity for the Conservative government to announce any significant tax changes before voters go to the polls.
As well as the axe falling on IHT, there is already speculation that a range of tax cuts may be pulled out of the chancellor’s red box, including cutting the basic 20 per cent rate of income tax.
There was strong speculation IHT would be axed last November as part of the chancellor’s raft of Autumn Statement pronouncements.
But that talk failed to materialise. Now, as the Tories look to put a clear divide between themselves and Labour on tax matters, it appears this may be the year IHT is disposed of.
IHT is owed on the part of someone’s estate above the tax-free threshold of £325,000, which can rise to £500,000 if a home is given to a child or grandchild.
The current rate is 40 per cent. Scrapping the tax would cost the Treasury around £8bn a year.
According to reports, IHT accounts for less than one per cent of total HMRC tax receipts. However, the sums gained by the Treasury have risen substantially each year since the pandemic, with the annual sum rising by 38 per cent since Covid struck.
In 2019/2020, before the pandemic, IHT receipts totalled £5.1bn, marking a -4.4 per cent fall on the previous year. Last year, the £7.1bn collected marked a huge 17 per cent year-on-year increase.
The IHT nil-rate band, which is the maximum amount a person can inherit before paying the tax, has been stuck at the £325,000 figure since 2009 – despite rising house prices. The tax’s gifting allowance of £3,000 a year has also remained unchanged since 1981.
Alongside claims of possible tax cuts, the housing secretary Michael Gove told The Times newspaper that help for first-time property buyers would “definitely” form part of the Conservatives’ pre-election appeal to voters.
There are reports that could include resurrecting a form of the ‘Help to Buy’ scheme,’ which ended last year.
Meanwhile, there are ways in which the existing IHT regime can currently benefit your own estate planning and ensure a fairer distribution of your assets through your family.
As with most tax issues the key here is to start your planning early and to get a good handle on your estate. Having a clear strategy is also important.
The £3,000 a year annual gift allowance is good place to start. So is reviewing your will and making sure your assets will be dispersed the way you wish.
Whatever happens to IHT in the future the question you should be asking now is: “Is my estate planning up to date?”
• To discuss any issues around IHT or other tax issues please contact me on 01772 430000
