The question of whether or not Inheritance tax (IHT) should be scrapped is an emotive subject. Those in Government will no doubt look at the Office for Budget Responsibility who forecast IHT to rise to £5 billion in 2017-18. This is equivalent to 0.2 per cent of national income. On a percentage basis, it does not seem very much (in Government terms anyway) but why would the Government scrap an easy and assured way of collecting revenue in austere times?
For individuals though, one of the most popular arguments for scrapping IHT is that they have paid tax throughout their lives (via income tax, capital gains tax and VAT etc.) so why should their estates be taxed again on death?
IHT is charged on net estates worth more than £325,000 (after deducting any liabilities, exemptions and reliefs). This £325,000 is known as the nil-rate band (NRB). For couples this rises to £650,000 as the NRB is transferable between spouses and civil partners but not cohabitees. In addition to this, since 6th April 2017 estates will be entitled to the residence nil rate band (RNRB) if on death they own a home/share of one which is left to “direct descendants”. Thereafter IHT is charged at 40%. This will mean that by 2020-21 married couples/civil partners would need to have collective estates worth over £1m before IHT becomes chargeable as each spouse/civil partner will have their own NRB plus a RNRB of around £175,000.
Some may argue that many estates will not be affected by IHT as their value is below the aggregate value of the NRB and RNRB. However, with property prices continuing to rise, it seems likely that an increasing number of estates will have to pay IHT.
In the spirit of fairness, surely consideration should be given to reducing the rate of Inheritance Tax and tapering the percentage according to the value of the estate. This would keep IHT in line with other taxes such as income tax and capital gains tax. In addition, there should be similar IHT reliefs available for cohabitees as there are for spouses/civil partners.
So we say – let’s keep it but tweak the provisions to make it fairer for all. Besides, in our soon to be post-Brexit Society the Government will no doubt need as much financial support as possible!