UK prime minster Rishi Sunak could potentially cut or even abolish inheritance tax (IHT), the Sunday Times has reported.
Reducing or even getting rid of IHT, which Quilter tax and financial planning expert Rachael Griffin called ‘one of the most hated taxes in Britain’ is a bid by the Conservatives to drum up support ahead of the Autumn Statement.
It is also a ploy by the Conservatives to get and regain voters in time for the general election.
This decision could benefit many middle-income earners who are being caught out by the tax due to property price growth, frozen IHT thresholds and inflation.
HM Revenue & Customs (HMRC) reported last week that IHT receipts reached £3.2bn ($3.91bn, €3.68bn) from April to August 2023 highlighting how many Brits being hit by the tax.
While this news will be welcomed by many, Quilter’s Griffin pointed out that there is likely to be ‘a sting in the tail’.
She said: “Britain’s finances are not looking on a particularly sure footing and the revenue generated from IHT is set to reach a record £8bn this year. While it is not a huge generator of treasury revenue, IHT is playing an increasingly significant role in the UK’s economic framework.
“As the government navigates the tightrope of public approval and fiscal responsibility, abolishing this revenue source altogether will create a fiscal hole that needs to be filled. The answer might be just as unpalatable to people and those calling for IHT to be completely scrapped may need to be careful what they wish for as it opens the door to new kinds of wealth taxes under a future government.”
Challenge
The challenge for the Conservatives will be to entice enough voters while also not making IHT reform look like it is favouring the wealthy suggested Griffin.
She added: “Opting for a sliding scale of IHT based on estate could prevent this perception so that total abolition isn’t simply seen favouring the rich however this might not be enough to appease core Tory voters.
“Increasing the nil rate band to £500,000 and £1m for married couples would be relatively straightforward. It could be accompanied by the removal of the residence nil rate band, as it is complex, and favours married households only.
“The government could also look at simply lowering the headline rate of 40%. A 20% rate alongside the removal of many of the available exemptions available would be sensible and help to simplify IHT.
“The government should also review and increase gifting allowances to bring them in line with the cost of living in 2023.”
