6th November 2023
In the lead up to the UK’s next General Election, Inheritance Tax (IHT) is once again in the spotlight. Katharine Arthur, Partner and Head of Private Client, reflects on the calls within the Conservative Party to reform or eliminate IHT.
Can IHT reform be supported?
IHT in the UK is perceived by some as overly punitive. While only a small percentage of deaths incur IHT, public sentiment views it as particularly unjust, with some advocating for its complete abolition.
However, Katharine questions whether now is the time for significant tax reform. With the UK government’s debt exceeding 100% of GDP, there are arguments to be had against any unfunded tax cuts. IHT currently generates over £8 billion annually for the Treasury, and its elimination would mean finding alternative revenue sources.
Increases to Income Tax are not seen as viable due to already high taxation levels, with the Office for Budget Responsibility (OBR) projecting a collection of £268 billion next year. As thresholds freeze, more taxpayers find themselves in higher tax bands, compounding the issue.
When it come to Capital Gains Tax (CGT), while it has been suggested that the rates should align with Income Tax, increasing CGT carries its own risks. Higher rates could discourage the sale of assets, particularly among older taxpayers who may opt to hold onto their assets instead.
What will happen now?
Despite vocal calls for IHT reform, the Treasury has not committed to any definitive plans, with only tentative suggestions of reducing and eventually abolishing IHT when financially viable. The Chancellor has underscored the lack of leeway for tax cuts. While the debate around IHT continues, the Government has not yet found a path to its reform or abolition, and the current economic climate suggests that substantial changes to the tax system might be more disruptive than beneficial.
You can read Katharine’s comments in full via FT Adviser here.
Autumn Budget 2023 analysis
The Autumn Budget will be published on 22 November 2023 and any news about IHT reform will be announced then, if it happens. Katharine, our Private Client team and our wider tax teams will analyse each announcement made to determine what these changes mean for you. To hear our latest insights following the Budget, join our mailing list to be the first to receive news as it happens.