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Plans from the Government to abolish inheritance tax will save the wealthiest 1% around £1 million each according to a report from the Institute for Fiscal Studies.
Must know money focuses on the financial news you need to know. Here’s what scrapping inheritance tax (IHT) would mean for the richest people in Britain.
The wealthiest estates in Britain stand to gain around £1 million in tax savings if the Government abolishes inheritance tax, a new report from the Institute for Fiscal Studies has found.
The report comes on the back of the news over the weekend that Prime Minister Rishi Sunak is considering abolishing inheritance tax ahead of the next general election, due in December 2024 at the lastest.
However one of the report’s author David Sturrock points out that one in eight people in the UK will end up liable to pay the so-called ‘death duty’ when they or their partner dies by the tax year 2032-33.
Inheritance tax earns £7 billion for the UK Treasury each year currently and this is set to rise to £15 billion by 2032-33. Less than 4% of estates pay the duty.
Why abolish inheritance tax?
Inheritance tax is designed to take cut from people’s wealth when they die. At the moment through various bands and exemptions, for a married couple there is unlikely to be any tax obligation on wealth under £1 million, assuming their own home is factored into that wealth.
Inheritance tax is seen as ‘progressive’ politically as mainly affects the wealthier in society. But this has led to a major financial advice industry dedicated to avoiding paying.
People use advisers to ‘mitigate’ their liabilities and tweak the structure of their wealth to minimise how big the tax bill ultimately is.
Despite this, inheritance tax is widely considered the ‘most hated tax’ in Britain. the public routinely poll unfavourably toward the tax, no matter the understanding of who it impacts.
One of the biggest criticisms of the tax, aside from the cost, is that it targets families when they are grieving the loss of a loved one.
Another major gripe is the perceived unfairness of taxing hard-earned wealth that has already been subject to a myriad of other taxes such as income, dividend, capital gains, or stamp duty, over the holder’s lifetime.
Photo by Ron Lach
Edmund Greaves is editor of Mouthy Money. Formerly deputy editor of Moneywise magazine, he has worked in journalism for over a decade in politics, travel and now money.