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Will the Inheritance tax be scrapped?

Then on December 27th, 2023, The Telegraph reported that several conservative MPs favoured cutting inheritance tax and the change could happen in the Spring budget.

Posted: 9th January 2024 by Courtney Evans
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How does the Inheritance tax work?

Inheritance tax was first introduced in 1984 and is tax paid on the estate, this includes property, money, and possessions of someone who has passed away. This tax must be paid on anything above the value of the £325,000 threshold. If everything above this threshold is left to a spouse, civil partner, charity, or a community amateur sports club there is no tax required to be paid.

The standard tax rate is 40% on what you inherit over the £325,000 threshold with £7 billion being raised annually through inheritance tax which is then spent on public services.

If the person passing away leaves their home to children or grandchildren the threshold can increase to £500,000 before being taxed.

If your estate is worth less than your threshold and you are married or in a civil partnership when you pass away, any unused threshold can then be added to your partner’s so the tax-free allowance increases for them.

In an interview with Clive Barwell, who has over 50 years of experience in the industry told us invaluable information about IHT, that the best and easiest way to save on IHT is to give your surplus wealth away as gifts.

“At the point of making a cash gift, there are no tax implications for either the Donor or the Donee, regardless of the amount given away. However, for the gift to be fully effective for IHT purposes, the Donor must survive for 7 years from the date of the gift. If they don’t, the value of the gift is added back into the IHT calculation upon death.”

Clive Barwell emphasises the significance of planning ahead and believes that “Failing to plan is planning to fail.”

Why does the Conservative Party want to cut Inheritance tax?

Towards the end of 2023, there was speculation that the conservative government would be getting rid of inheritance tax due to their plans for a 'gear change' on tax. Those in favour at this time were warned of the backlash from the public as this change focused on tax cuts for the rich rather than helping ordinary families in a time of economic uncertainty.

Then on December 27th, 2023, The Telegraph reported that several conservative MPs favoured cutting inheritance tax and the change could happen in the Spring budget.

The conservative party are said to be behind Labour in the polls and looking for ways to boost their numbers. The Independent stated that members of the conservative party believed that this could be a “game changer.”

Who will this benefit?

The Institute for Fiscal Studies notes that 1% of people in the UK would receive almost half of the benefits. Only the wealthiest in the UK will come out of this change with a positive outcome.

As inheritance tax is only paid by 4% of households, that’s 1 in 25 paying this tax.

A YouGov survey tells us that 54% of voters considered the tax ‘very unfair’ or ‘unfair.’ With a high proportion of people feeling the tax is unfair, the Conservative Party feel this gives them an advantage in upcoming elections.

How likely is it to be abandoned?

Although there are rumours that many MPs are in favour of the inheritance tax cut there are also some expressing their distaste for this cut. Jonathan Gullis, former Education Minister has said he would rather see “the higher rate income tax threshold raised, or the basic rate of income tax cut now.”

Additionally, Neil O’Brien, the former Health Minister has said, “People most want to cut taxes that fall on low- to middle-earners and council tax and VAT.” The Guardian brings an Ipsos poll to our attention that showed the public preference for a tax cut was one on low-income tax (44%), followed by 36% hoping for council tax cuts.

It is largely felt that IHT being cut is just a speculation as some conservative members are highlighting other, more pressing matters that are important to the public. The MPs are also aware of the likelihood of backlash with this change causing the delay and second thoughts.

The cutting of inheritance tax could likely become a manifesto pledge rather than a set-in-stone policy.

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