Call to scrap inheritance tax as 'unfit for Modern Britain'

3 May 2018
Image

Inheritance Tax is unfair to families and should be scrapped, a think tank has urged. 

Resolution Foundation, a think tank working to improve the living standards of people on low and middle incomes, says a new inheritance tax system is needed.

The amount of wealth passed on through inheritance has doubled to an incredible £100 billion over the past 20 years and is expected to double again over the next two decades.

But as people have more wealth to pass on, they are more likely to have to pay tax on those assets when they die. 

The taxman took some £5.3 billion from estates in 2017, according to figures from NFU Mutual. That’s despite the fact that only around 4% of estates are currently subject to inheritance tax. 

Inheritance tax is paid when someone dies and their total assets are worth more than £325,000. Any assets over this amount are subject to tax at 40%. 

Adam Corlett, senior economy analyst at the Resolution Foundation, says: “The current system of inheritance tax manages the uniquely bad dual feat of being both wildly unpopular and raising very little revenue.”

A new residence nil-rate band is being phased in from this year, which will mean that by 2020 individuals will be able to pass on an additional £175,000 when leaving their main residence to a direct descendant. 

But those against IHT point out that, this move aside, the inheritance tax allowance hasn’t increased since 2009. This leaves homeowners at a significant disadvantage because since then house prices have climbed around 36%. 

If the IHT allowance had increased in line with house price inflation, then a couple would now have a joint tax-free allowance of £887,900 to pass on rather than the current £650,000. 

Resolution Foundation says inheritance tax is “not fit to deal with wealth in modern Britain”. It wants to see it replaced with a Lifetime Receipts Tax at a much lower rate. 

This would work by taxing those who benefit from an inheritance rather than taxing the deceased’s estate as a whole and, crucially, would only apply to inheritances greater than the lifetime allowance.

Mr Corlett adds: “Rather than tweak our failed inheritance tax system, it should be scrapped altogether and replaced with a new Lifetime Receipts Tax. This would be fairer to families, harder to avoid and would ensure our tax systems keeps up with 21stcentury Britain.”

Comments

In reply to by anonymous_stub (not verified)

So, if IHT allowances were to be increased in line with property prices, who would decide which increase in property prices to use, given that different areas and different classes of property change in value differently? Also, would it be reversible in times of house price falls?Tinkering with the method of taxing inheritance is only worthwhile to government if revenues would increase. The suggestion of taxing the beneficiaries needs to be carefully considered because it is perfectly possible for an individual to receive inheritances from their grandparents and parents generations, not to mention predeceasing siblings and accruing these against a lifetime limit (which - as we already know - can be increased or reduced arbitrarily) turns inheritance into a tax upon surviving.My real concern is with the way that super-wealthy people completely bypass taxes while less-wealthy people are ensnared. Those who advocate for the most efficient ways of passing on wealth argue that it's immoral to steal the hard-earned wealth of people who have been particularly successful in life and gained a fortune. I quite agree, but I would extend that to all inheritances, big and small. While the system allows the super-wealthy to avoid/bypass such taxes and preys upon people who cannot afford complex tax planning, it is intrinsically immoral. Until that iniquity can be ironed out (which obviously means NEVER), I would advocate for the scrapping of inheritance taxes. By way of compensation for lost revenues, I would advocate for the taxation of property, which would also bring in revenue from foreign owners of UK property, who otherwise avoid UK tax.

In reply to by anonymous_stub (not verified)

Probably voted for by rich people who don't want to pay fair dues

In reply to by anonymous_stub (not verified)

Surely this article, and the Resolution Foundation's perspective is incomplete, and is pure tokensim, without a comprehensive analysis of the fiscal streams that should be provided to fully compensate for the annual loss of £5.3 billion tax revenue that contributes to the public services and other governmental activities that everyone argues should be provided, if not enhanced ?

In reply to by anonymous_stub (not verified)

£5.3 billion raised in 2017 from inheritance tax - I can't see any chancellor wanting to give that up?

In reply to by anonymous_stub (not verified)

Just another" RIP OFF" in this Gt. Britain of ours.

In reply to by anonymous_stub (not verified)

Speaking as someone who has paid inheritance tax, I don't think anyone should count on an inheritance in their future plans. It is far better if the money is spent on a top quality Nursing Home if that is what is required. I have had no pleasure from the money and feel it was good timing that I bought my new car with MY money six months before my Mother died. I saw yesterday that the "Right to Die" debate rumbles on. I think that if that was legalised the inheritance tax for anyone using the facility should be set at 100%. No one should benefit from another person planning their own death.

In reply to by anonymous_stub (not verified)

How I agree. I live in a small 2 bedroom retirement bungalow and have modest savings. Because I live in the south of England where house prices are crazily high my estate will be liable for inheritance task. I always thought it was designed for the wealthy and I, like many other people in a similar trap, am not wealthy.

In reply to by anonymous_stub (not verified)

4%? So what we're saying then, it is really only affecting the very wealthy and they're the ones who want rid of it. (Tory voters, perchance?)

In reply to by anonymous_stub (not verified)

Although I am not affected by IH i do believe the limits should be quite a lot higher, people who have taken care of their money should be allowed to pass on a lot more without any tax being paid also be allowed a higher value main home should be protected against tax, maybe restrictions from people who own more than one property should be restricted from switching which they claim as their main home for at least 5 years, this has been a fiddle used by MP's for expence claims.

In reply to by anonymous_stub (not verified)

12 years too late for me,my inheritance reduced by a £30000 because of this tax.

In reply to by anonymous_stub (not verified)

Get rid of inheritance tax and its daft mass of regulations and exceptions, it should fall under income tax and be treated as income in the hands of the recipient. Saving the country billions in admin costs and end up being much fairer. Currently only the middle classes pay it. The poor never reach the threshold and the rich pay accountants and lawyers to use the loop holes so they avoid paying it.

In reply to by anonymous_stub (not verified)

Please subscribe me

In reply to by anonymous_stub (not verified)

Regarding Inheritance Tax:Should not occur if your only home.Other property should be taxed.Many people whose homes are above the threshold cannot afford and do not know how to mitigate having their home taxed after they die.Wealthy people, though, can afford to do so and many have investment properties.I do not propose increasing the inheritance tax.

In reply to by anonymous_stub (not verified)

People like myself have worked all my life, saved hard, & paid tax on my earnings. Why should we be penalised for saving & investing wisely by having to pay 40% Inheritance Tax on what has been accomplished?

Add new comment