01162822177 enquiries@rowleyturton.com

Is inheritance tax for the chop?

15th November 2019

axe, chop, inheritance tax

 

Inheritance tax is deeply unpopular, there’s no denying it. According to a 2015 YouGov poll, 59 percent of the population think it’s unfair. 

So whichever party is in power after the Election, it’s likely they will include it as one of the taxes to be reviewed.    

Indeed, at the Tory party conference in September, the Chancellor, Sajid Javid, went so far as to hint he was considering scrapping inheritance tax altogether. He is thought to be uneasy that revenue from the tax reached an unprecedented £5.4 billion in 2018-19; a figure made even more noteworthy when only 4-5 percent of UK estates are liable for inheritance tax.    

Politicians have protested against the tax for many years – and not just in the UK. Way back in 2007, George Osborne proposed that the threshold should be raised to £1 million. In the US, the Republicans under George W Bush gradually reduced inheritance tax until it was abolished altogether for a temporary period in 2010. As for the current day, Donald Trump has doubled the threshold from $5.5m to $11.2m. Other countries that have eliminated the tax altogether include Sweden and Norway, India, Canada and Austria.     

Inheritance tax is thought to be unjust, sometimes even referred to as the ‘death tax’, because it is deemed to be a form of double taxation. As Sajid Javid put it, “I do think when people have paid taxes already through work or through investments — capital gains and other taxes — there is a real issue with then asking them to, on that income, pay taxes all over again.” 

But it’s not the only instance of double taxation in everyday life. For example, we all pay VAT on goods with income that has already been taxed. What’s more, it is the bequeathed estate that is taxed, not the person. The tax (at a rate of 40 percent) only kicks in on estates above £325,0000 or £650,00 for a couple, with the relatively new nil rate band allowance enabling property up to £1million to be transferred.   

Those who defend a progressive inheritance tax system do so in the interests of equality of opportunity. They believe it prevents privilege simply being transferred from one generation to the next.  

It seems likely, however, that political parties on each side of the spectrum will propose an alternative to the current rules. Whatever is introduced, a simplified system would be welcome. The Institute for Public Policy Research (IPPR) has put forward a solution which would abolish the tax and replace it with a lifetime donee-based gift tax. This new tax would be due on any gifts received by an individual over a lifetime allowance of £125,000, at the same rate as income tax, but gifts between partners would be exempt. 

The Resolution Foundation estimates this would raise £15 bn in 2020/21, £9.2 bn more than the existing system, making it an effective way to replace the current £5.4 bn.   

Watch this space to see how this particularly contentious hot potato is handled by whoever is in power next.

Subscribe to receive your FREE regular newsletter

Award, Investment, Life, Pension, Moneyfacts, 2015, Estate, Tax, Planner, of the Year, Best, Adviser   PFS, Pension Transfer, Gold, Standard, Final Salary, DB, Defined Benefit  Independent Financial Adviser, IFA, Independent, Financial, Adviser, Advisor    

Retirement Planner, award, firm of the year, midlands, 2018, pensions, adviceVouchedfor, Rating, Best, IFAChartered Financial Planners, Chartered Financial Planner, Chartered, Financial, Planner

Rowley Turton (IFA) Ltd is authorised and regulated by the Financial Conduct Authority. Financial Services Register No: 457946 http://www.fca.org.uk/register.

Rowley Turton (IFA) Ltd Registered Address: Charnwood House, Harcourt Way, Meridian Business Park, Leicester, LE19 1WP. Registered in England & Wales, No. 3145431.

Neither Rowley Turton (IFA) Ltd nor its representatives can be held responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

The Financial Conduct Authority does not regulate National Savings or some forms of mortgage, tax planning, taxation and trust advice, offshore investments or school fees planning.

The Financial Ombudsman Service (FOS) is an agency for arbitrating on unresolved complaints between regulated firms and their clients. Full details of the FOS can be found on its website at http://www.financial-ombudsman.org.uk.

The information contained within this site is subject to the UK regulatory regime and is therefore targeted primarily at consumers based in the UK.

Please read our Privacy Statement before completing any enquiry form or before sending an email to us.