Inheritance tax row: Rishi Sunak told to scrap levy completely: 'Do away with it'

Inheritance: Expert gives advice on ‘good planning’

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Various reports over recent weeks have claimed Chancellor of the Exchequer Rishi Sunak could make changes to inheritance tax in order to raise funds. The UK Government is looking to rebalance the economy after a turbulent 18 months due to the pandemic. The standard inheritance tax rate is currently 40 percent, but it is only charged on the part of your estate that’s above the threshold of £325,000.

Inheritance tax raked in £190million more in the latest tax year when compared with the year before.

This was a four percent rise from the previous year, taking the total paid in inheritance bills to £5.4billion in 2020-2021.

The tax haul is expected to reach an all-time high of £6billion next year, thanks to the mounting COVID-19 deaths, booming house prices and a five-year freeze in tax protections announced at the March Budget.

Inheritance tax has always been a divisive levy, and Tom Elliott, partner and head of London private clients at Crowe UK, warned Mr Sunak last summer that the levy should be scrapped.

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Inheritance tax news: Sunak could rake in more from IHT (Image: getty)

Inheritance tax news:

Inheritance tax news: Sunak announced his Budget in March (Image: getty)

He said: “Whilst inheritance tax has generated more than £5billion in each of the last three tax years, it remains a very small part of the total revenue collected by HMRC.

“There has been much talk of possible reform to inheritance tax but let’s not forget that the Chancellor’s predecessor Savid Javid went on record during at the Tory Party conference last year saying that he could consider scrapping the tax completely.”

On the future of inheritance tax, Elliott’s view is that, if the Treasury is seriously considering an annual wealth tax, this would provide the perfect opportunity to not just reform inheritance tax but “do away with it completely”.

He added: “Politically, the [UK] government would be seen to be continuing to tax wealthy estates, albeit in a different format and if a wealth tax is deemed necessary, it will be more acceptable to those exposed to it if they were to be excused from their current exposure to inheritance tax.”

READ MORE: Inheritance tax warning as levy ‘obvious target’ for Sunak’s tax raid

Inheritance tax news:

Inheritance tax news: IHT is a divisive tax (Image: getty)

Other experts disagree however. Analyst at AJ Bell, Tom Selby, told Express.co.uk this month that wealth taxes are the fairest way to raise funds.

He said: “I think wealth taxes are probably the fairest way – ensuring those with the broadest shoulders are targeted to take on the costs of paying for COVID-19.

“It would be fair, whether it is something they believe they can do politically is another thing. There will be challenges around people avoiding bills.”

On whether the rate of inheritance tax could increase, Mr Selby predicted the Government will instead look to change.

He added: “You can either increase the percentage charged or you can decrease the limits of inheritance tax. Historically they have gone for the thresholds route and I suspect that is the option they would go for again.”

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Inheritance tax news: The Treasury could rake in more cash (Image: getty)

Inheritance tax news:

Inheritance tax news: ISA information (Image: getty)

Another wealth tax that could reportedly undergo changes is capital gains tax.

It currently charged at 10 percent or 20 percent depending on whether you are a lower rate or higher rate taxpayer.

But capital gains could be aligned with income tax – meaning some people could be charged as much as 45 percent if savers find themselves in a higher bracket.

Mr Selby adds that this measure would likely spook people into moving cash into ISAs and pensions to try and avoid hefty bills.

He continued: “You’d also see a flow of assets into tax-efficient savings products such as ISAs and pensions.

“Naturally if you raise capital gains tax people are going to want to move their money where they won’t be charged.”

William Murphy

William Murphy

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