The Daily Telegraph has launched a campaign to abolish Inheritance Tax (IHT) backed by 50 Conservative MPs, including former Prime Minister Liz Truss.
IHT is a notoriously unpopular tax, so this will surely be a headline-grabbing campaign.
Many people feel that by paying IHT, they are being taxed twice on the same assets; being able to benefit our loved ones is one of the few comforts in death, yet IHT reduces the available estate; and at 40% IHT is one of the highest rates of tax.
Despite its unpopularity, the number of estates paying IHT remains very low. In 2019-2020, just 3.76% of deaths resulted in an IHT charge. This is due to the various allowances, exemptions, and reliefs which Executors can claim.
Nil Rate Band for Inheritance Tax
In England and Wales, each person has an IHT allowance (known as the Nil Rate Band allowance) of £325,000. In addition, most people can also benefit from the Residence Nil Rate Band allowance of £175,000, giving most people a combined allowance of £500,000. In addition, IHT is not payable between spouses, so spouse exemption can be claimed when the first of a married couple dies. The unused allowances can be transferred to a surviving spouse, giving them a combined allowance of £1 million.
Further reliefs can be claimed for certain assets, such as Business Property Relief, Agricultural Property Relief, and charitable exemptions.
Inheritance Tax Planning
With proper planning, IHT can be mitigated or even avoided altogether.
Nevertheless, campaigners argue that because Jeremy Hunt announced in his Autumn Statement that IHT allowances will be frozen until at least 2028, this is a stealth tax with more estates than ever being brought into the scope of IHT. Indeed, last year the number of estates bearing IHT hit a 20-year record high.
What is the alternative to Inheritance Tax?
However, it cannot be ignored that just last year, the payment of IHT provided revenue of £7.1 billion, so the question remains: If IHT is abolished, how will the Government plug the gap?