Our Tax Partner, Craig Simpson, comments on the Inheritance Tax speculation circulating over the weekend.
At the weekend, the press speculated that the Prime Minister is considering a cut to Inheritance Tax, ahead of the next general election. Reform and even the abolition of the tax has been muted. IHT is currently charged at 40% of estates worth more than £325,000 with an extra £175,000 allowance towards a main residence. In most cases a married couple can in effect pass on £1,000,000 to their children without tax to pay.
IHT is now paid by more middle-income earners – the effect of property price increases and frozen IHT thresholds – making a reduction in the 40% IHT rate popular. That said, it remains a tax paid by less than 4% of estates. IHT is predicted to raise £8bn for the treasury this year, leaving a significant hole in the finances, were the tax to be scrapped altogether.
Craig Simpson, Tax Partner at Bates Weston comments:
“It is difficult to see the government completely abolishing IHT. Based on the IHT government statistics raising the IHT threshold to £2m per person would remove 90% of the estates currently paying IHT. It is a tax which could do with an overhaul and simplification. The complexities have been built on years of tinkering. It is difficult for tax payers to understand the nil-rate band and residence nil-rate band system with any clarity. It would be much simpler just to raise the threshold to which the tax applies. Whether this is politically palatable is another question.”
We will have to see whether any of this speculation becomes reality.
This guidance is generic in nature and does not constitute advice. You should take no action based upon it without consulting ourselves or your own professional advisor.