Should we scrap inheritance tax? - a Solicitor's perspective
If you are a regular newsreader then you may have seen recent articles about pressure on Prime Minister Rishi Sunak to scrap this contentious tax.
At Lawson-West, our Probate, Wills and Trusts deal with inheritance tax (IHT) day-in, day-out. So what are our thoughts?
When is IHT payable?
IHT was introduced originally as Capital Transfer Tax (CTT) by Labour in 1975 in the face of fierce Conservative opposition.
Firstly, it’s important to remember that IHT is not payable on most estates (in my experience). Generally, a person can pass on £325,000 to their loved ones when they pass away, and in some cases this goes up to £500,000, meaning that a couple could leave up to £1m to their children/grandchildren when they die.
Most people I speak with don’t have £1m in assets between them as a married couple. Naturally though, you might have more of a problem if you live somewhere with very high property prices, such as London, Surrey or Oxford.
One of the biggest reasons that IHT is so contentious is because it is (broadly) charged at a massive 40% of the value of the estate which is in excess of the above allowances. It is also considered to be an unfair "double-tax", because you have already paid income tax on your income at source.
Why is this in the news?
Newspapers, politicians and people who work in finance say that it is hard for “middle earners” to avoid IHT, but easy for the ultra-rich.
The truth is that the rules are the same regardless of how wealthy you are. It is possible that the wealthier people may have spent money on obtaining advice on how to reduce a potential IHT bill on their death (something that we at Lawson-West has the expertise to advise on).
If IHT were to be abolished then this would leave a gaping hole in the country’s finances – reportedly in the region of £7 billion per year.
What are the alternatives?
If we do need an alternative to help the treasury purse, then broadly the suggestions seem to be:
- Tax more estates but at a lower rate – perhaps 25% rather than 40%; or
- Abolish it completely – but would that then lead to higher income tax rates to fill the hole?
Unfortunately there is no simple answer to what we could use as an alternative, as the public purse needs as much money as it can get – any reform to IHT would never be approved if it meant that less tax was paid overall.
IHT and the wider debate
In France, they abolished IHT in 2007 and now allow transfers between spouses or civil partners exempt from IHT. Similarly Austria, Cyprus, Estonia, Latvia, Malta, Norway, Romania, Slovakia and Sweden do not have IHT. There is an important argument that families would be financially better-off if no IHT was charged, giving much higher legacies to beneficieries upon the death of a parent, which would then lead to richer families, more able to spend more money and enhance the economy because of it. Although the government wouldn't see much of this spend, it is thought that the impact of the abolishment of IHT would help bolster the economy generally. With an estimated 1 in 25 estates in the UK being liable for IHT, a great number of families are affected and billions of revenue is involved.
According to the Daily Telegraph, more than 50 conservative MPs, including former chancellor Zadhim Nahawi, are in the group of protesting MPs asking Rishi Sunak and chancellor Jeremy Hunt for the tax change.
Sophie Forsyth, Associate Solicitor, Probate Trusts & Wills team
Lawson-West Solicitors, Leicester
"If you are concerned about IHT then it is more important than ever to seek specialist advice, as it is possible that the rules will change imminently in light of this political campaign." Contact Us.
How can I avoid IHT?
The million dollar question – and I answered it in [this blog] https://www.lawson-west.co.uk/for-people/services/probate-wills-trusts-and-lasting-powers-of-attorney/articles/how-to-avoid-inheritance-tax
For bespoke advice on your IHT position, contact our expert solicitors today. Contact Us.
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More reading:
Government, IHT levels and the Law
