Amid renewed speculation – first reported by Guido – that Tory Shadow Chancellor Andrew Griffith might pledge to abolish Inheritance Tax at conference in a few weeks, Guido has compiled some essential facts about the tax. And its abolition…
IHT is charged at 40% on estates above a £325,000 nil-rate band, frozen since 2009 and now frozen to April 2031, with an additional £175,000 residence nil-rate band where a home passes to direct descendants and both bands transferable between spouses, giving a couple up to £1 million tax free. The UK’s IHT is one of the harshest:
- 18 out of 38 OECD countries do not levy any inheritance tax on direct descendants.
- The UK has the fifth highest inheritance tax in the OECD.
- The effective UK IHT rate is three times the global average and two times the EU average.
- Abolition would add 300,000 to the workforce.
- The US levies IHT but it only cuts in if your estate is worth over $12.92 million. A married couple doesn’t pay the death tax unless their assets exceed $26 million…
- The inheritance tax threshold has been stuck at £325,000 for 17 years since April 2009.
- Inheritance reduces inequality. OECD 2021 report pointed out: “While lower-wealth households receive smaller inheritances and gifts, these are typically large as a share of net wealth.”
- Administering IHT directly costs the taxpayer approximately £66 million per year.
- For those countries which still levy IHT, the rate is often modest. 4% in Italy if the estate goes to children, 15% in Denmark, 10% in Iceland…
- By 2027 average priced properties in 77% of local authority areas will be liable to inheritance tax.
- Sweden’s left-wing govt scrapped the inheritance tax in 2004, boosting economic growth. Capital flowed in with Ikea founder Ingvar Kampland moving back to Sweden and Finnish financier Björn Wahlroos moved in…
- Abolition would raise GDP per capita by 1.4% by 2044.
- Removing the tax on bequests leaves more wealth intact to be saved and invested, lifting the economy’s total capital stock by 0.78%.
- In 2022/23, IHT raised 0.89% of total tax revenues.
- Austria, Portugal, Sweden and Norway have all abolished inheritance taxes in the last 20 years.
- At least 83 countries do not levy inheritance tax at all, including Norway, Sweden, Canada, Australia, New Zealand, Mexico, Austria, Cyprus, Slovakia, Israel, China, India and Singapore. A further 20 or so exempt assets passed to direct descendants, so a majority of countries either do not levy IHT or do not levy it on assets passed to children.
- The claim that only 4% of estates are liable is out of date. HMRC figures released in 2023 showed that within 10 years 1 in 8 people (12%) will have IHT due on either their own or their spouse’s death, rising to 23% in London. That was before Labour brought pension pots, business and agricultural assets and AIM stocks into scope.
- Inheritance is a critical source of business funding. Research by Charles Stanley found 20% of new businesses rely on inherited money, only 1% less than bank funding, and 19% of start-ups are financed by parents. Only 8% are funded by venture capital. 15% of business owners use inheritance for further growth investment.
- The obvious consequence of the policy is that profits are hoarded to pay the tax bill rather than ploughed into investment. CBI Economics found 55% of BPR-affected and 49% of APR-affected businesses have paused or cancelled planned investments, an average fall of 16%. More than 60% expect to cut investment by more than 20%.
- Around half of family businesses and farms foresee lower headcount or have paused recruitment, with an average headcount cut of 9% per firm and a similar 9% fall in turnover.
- CBI Economics estimate reduced activity will cost £14.8 billion in GVA over the five years to 2030, of which £6.5 billion is family businesses and the rest supply chain. They put the result for the Exchequer at a net fiscal loss of £1.9 billion over the period, likely an underestimate.
Reform has attacked the potential Tory proposal – Robert Jenrick called it a “desperate play.” Reform pledged to abolish the tax altogether in 2025, too…
UPDATE: Kemi Badenoch confirms she is looking at stripping down or scrapping Inheritance Tax.
“Reform says abolishing inheritance tax is ‘morally wrong’. I think it is morally wrong to punish people for doing the right thing – spending a lifetime working, saving, building up a business or a home to pass on to the next generation.
That’s why I’ve asked my team to explore fiscally responsible ways to do address this burden. The people caught by inheritance tax are mostly home-owning middle-class families due to house price inflation, diligent savers, and small-business owners.”
