Published On: Tue, Mar 5th, 2024

Inheritance tax: Two huge reasons why scrapping unpopular levy would be masterstroke | Personal Finance | Finance

Abolishing would save taxpayers £5billion and win over traditional Tory voters, according to a new study.

Jeremy Hunt is under pressure from senior figures within his own party, including Sir Iain Duncan Smith and Sir Jacob Rees-Mogg, to use this weeks to do away with what has been labelled the UK’s ‘most hated tax’.

A new study by probate experts at Final Duties argues that the abolition would deliver £5billion a year to families while removing less than 1 percent of the government’s tax income.

Analysis by Final Duties shows that the UK’s total inheritance tax bill came to £5.1billion in 2020-21.

That figure has soared by 99.1 percent from the £2.6billion recouped for the Treasury through the tax some ten years earlier in 2010-11.

The increase has largely been driven by rising house prices that have taken the estates of many elderly people over the inheritance tax (IHT) threshold.

Inheritance tax is applied to estates valued at £325,000 or more, with this threshold increasing to £500,000 for direct descendants of the deceased, such as their children.

On a regional level, the biggest increase in inheritance tax payments has been recorded in the North East where totals paid to the Treasury rising 153.8 percent in the last decade.

It was followed by the West Midlands (137.4 percent), East Midlands (126.3 percent), East of England (120.3 percent), and London (111.7 percent).

Final Duties argues that while the sums paid in IHT may seem large, they represent a relatively small contribution to Government income.

This is because in 2023, inheritance tax receipts accounted for just 0.91 percent of all HMRC tax income.

Research by the Institute for Fiscal Studies (IFS) puts current annual IHT revenues for the government at a higher £7billion.

It argues that scrapping the tax would benefit the nation’s most wealthy.

It said: “Around half of the gains from abolishing inheritance tax would go to the wealthiest 1 percent at death, whose estates would see an average tax cut of £1million.

“Around half would also go to estates in London and the South East, where the wealthiest individuals are concentrated. More than 90 percent of people don’t have inheritance tax paid on their or their partner’s death and so wouldn’t benefit from abolition.”

However, Managing director of Final Duties, Jack Gill, suggested a big splash announcement, such as doing away with IHT, is the sort of thing that could create clear blue water between the Tories and Labour at a General Election.

He said: “As the General Election gets closer, the government will be keen to make a splash with a headline statement designed to win favour ahead of the next election.

“Having already shied away from a proposed 99 percent mortgage policy, it seems that abolishing inheritance tax might be the best trick they have up their sleeve.

“The reason such a policy might work is because it appears, on the surface, to be a generous tax break at a time when so many are struggling financially. It also appeals to the Tory stronghold with whom the idea of being taxed on the assets you have gained through a lifetime of hard work doesn’t sit well.

“However, it’s fair to say that abolishing inheritance tax isn’t actually that big of a carrot to dangle in front of soon-to-be voters, accounting as it does for such a small slice of the tax pie.

“It’s also fair to say that it would make very little difference for the majority of people because, as was recently reported, only 4% of estates in the UK are actually subjected to inheritance tax.

“So if an abolishment does make a difference, it will only be for the most wealthy corners of society.”

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