In recent years, the topic of Inheritance Tax has become a hot-button issue across the UK. HMRC reports a significant increase in IHT receipts, collecting £3.2bn from April to August 2023 alone, so the burden of this tax has been felt by many ...
With the public's sentiment on Inheritance Tax, it's clear that significant changes are being considered!
This figure is £0.3bn more than the previous year, and I predict that HMRC is on track to earn a record £8bn from IHT this year. The rise in IHT receipts is attributed to frozen personal allowance thresholds and the inflationary growth of asset values.
"However, change might be on the horizon!"
Prime Minister Rishi Sunak is reportedly considering plans to cut Inheritance Tax, with discussions at the highest level of government. One proposal under consideration is to phase out the levy by reducing the current 40% rate in the upcoming budget in March. This move is seen as a precursor to a more ambitious plan: abolishing the tax entirely in the future.
The motivation behind this potential reform is multifaceted. A senior Government source revealed to the Sunday Times that political advisers have been exploring the idea of abolishing IHT as a potential manifesto pledge.
While the source acknowledged that it's not a step the government can take immediately, they highlighted the public sentiment around the tax. Surveys indicate that IHT is "the most hated tax in Britain." Many feel it's unjust to tax income that has already been taxed, especially during a time of grief.
Interestingly, Treasury figures show that only 3.76% of UK deaths result in an Inheritance Tax charge. Yet, polling data reveals that 31% of people believe their assets will be enough to attract IHT upon their passing, and 15% expect to receive an inheritance large enough to be taxed.
I feel there's definitely a case to 'reform' Inheritance Tax by reducing the 40% rate and removing exemptions that allow the very wealthy to sidestep the tax. However, I'd caution against abolishing it entirely, as it could further the advantage of those who come from very wealthy backgrounds.
"The 2025 General Election approaches!"
The future of IHT in the UK remains uncertain, but I'm sure the Government will do something as a crowd pleaser to help them get votes at the next election. The March 2025 Budget announcement will be the perfect time to do this.
With the public's sentiment on Inheritance Tax, it's clear that significant changes are being considered.
Until next time ...
ROGER EDDOWES Business Godparent
Would you like to know more?
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Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
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