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Could Inheritance Tax Be Abolished?

The Government’s Recent Announcement on Inheritance Tax – Could It Be Abolished?

 

The next UK general election is expected to take place in January 2025.  In light of this, Rishi Sunak is hoping to appeal to potential voters by looking at arguably the most controversial tax left in the UK – Inheritance Tax.  This is tax owed to HM Revenue and Customs on the estate of a person who has died, i.e. on their property, money and personal items.  Its purpose is to ensure that wealth is fairly distributed within the economy to promote social equality.  It is also a form of revenue for the Treasury, a government department which controls public spending.

The government is considering a reduction in the Inheritance Tax rate (currently 40%) with a view to eventually abolishing this type of tax altogether.

Despite the benefits mentioned above, the tax is widely viewed as unfair and immoral.  The cabinet minister, Grant Shapps, recently described the tax as ‘punitive and unfair’ saying ‘people know that there’s something deeply unfair about being taxed all their lives and then being taxed in death as well’.  If the government does scrap this tax, it may be a vote-winner.  However, the government would be taking a large hit financially in terms of the revenue which would be lost.

In the year 2020 to 2021 (the latest full year of data), the revenue generated from Inheritance Tax was almost £6 billion, an all-time high.  In the year 2023 to 2024, the forecast is that Inheritance Tax will raise £7.2 billion.  An important decision must be made – is the potential goodwill from voters worth such a big hit in tax revenue?  There is a fear that the lost revenue would need to be countered with spending cuts or tax rises elsewhere.

Whilst these figures are extremely high, Inheritance Tax accounts for less than 1% of the total tax revenues.  Other taxes generate much higher revenues for the government, such as Income Tax (which accounts for around 1/3 of total tax revenues) and VAT (accounting for around 1/5 of total tax revenues).  If tax cuts are to be considered, some are calling for these taxes to be prioritised over Inheritance Tax.

Tax cuts are not the only concern for the government and they may instead focus on other priorities, such as lowering inflation and cutting NHS waiting lists – two of Rishi Sunak’s five priorities for 2023.  In any event, a decision on ‘Britain’s most hated tax’ is not expected until 2024.

 

If you would like any further information or advice on Inheritance Tax, please contact a member of our Wills and Estate Planning department on 01256 320555 or mail@clarkeandson.co.uk

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