The UK Labour Party has failed to read the room when it comes to their plans to slash inheritance tax thresholds to £125,000 ($161,000, €145,000), as evidence suggests it would go down like a lead balloon.
A survey of 3,000 Brits by luxury jeweller William May found overall the UK public believe the tax-free nil rate band should be raised to £679,000, from the current 40% tax on estates above £325,000.
It also found 70% do not agree with the principle of taxing people on their inheritance.
Interestingly, over half (58%) did not know the current inheritance tax threshold.
Feasibility
Neil Jones, tax and wealth specialist at Canada Life, told International Adviser: “From a purely political perspective, doubling the IHT threshold is well within the government’s powers and it would certainly be seen as a positive step by the majority of people.
“To be clear, the government has increased the nil rate band with the introduction of the residence nil rate band, but this is over-complicated and conditional – unfairly disadvantaging those who don’t own a home or have children.
“Economically, it’s far less certain that they would increase the IHT threshold.
“IHT brought in £5.4bn and rising in the 2018-2019 tax year – small change, perhaps, in the overall scheme of government taxes, but it is a rising part of revenues in a time of increasingly concerned markets.
“The UK still has a need to generate revenue so they would have to recover this in a different way and it may not be possible to avoid any IHT replacement.”
Image 1: Number of UK adults say the inheritance tax threshold should be
Source: William May
Eats at savings
“There is no way to avoid inflation in day to day life – it eats away at our savings, it increases the cost of daily expenses and much more,” Rachael Griffin, tax and financial planning expert at Quilter, said to IA.
“And yet the government have avoided the eroding nature of inflation as the nil rate band has been £325,000 since 2009. If it had tracked inflation it would be worth £428,240 in 2018.
“The nil-rate band should be increased and if it done so to an appropriate level it would remove the necessity for an overly complex residence nil-rate band.”
Yousafa Hazara, an associate at law firm Irwin Mitchell, said: “The only glimmer of hope in getting an increase to the nil rate band is by aligning it to the residence nil rate band, which would increase the threshold to £475,000 (and £500,000 by 2020) as well as remove the complex rules linked to property ownership.”
Definition
The William May survey also found that 74% of respondents feel that personal possessions that might fall into the IHT net, such as jewellery, should be excluded.
Moreover, 60% agree that the inheritance tax threshold should be correlated to house prices.
Nearly two-fifths (39%) of Brits admit they wouldn’t declare gifted jewellery from a parent in order to avoid paying the inheritance tax on it.
Respondents were also asked what items they would like to exempt from inheritance tax and 34% said land.
Jewellery (20%), artwork (18%), cars (16%), vintage watches (7%) and shares (5%) were also listed.
Table 2: % of Brits that don’t believe inheritance should be taxed
Source: William May
Better the devil you know
Canada Life’s Jones added: “As it stands, people can often quite effectively plan for IHT taxes.
“The question we must ask is: ‘will we still be able to do that with its replacement?’ Is it a case of ‘better the devil you know’?
“This will be down to what changes are made and each individual’s personal circumstances.”
