Is IHT ripe for an overhaul?


Press coverage over the weekend reported that MPs have called for a radical shake up of the current inheritance tax system with proposals to cut the current “unfair” rate of 40 per cent down to 10 per cent.

In its report published on January 29 the All-Party Parliamentary Group on Inheritance Tax and Intergenerational Fairness urged the government to change the current system which it claimed was “complex, ineffective, riddled with anomalies, distortionary and unfair”.

The report suggested most reliefs on inheritance tax should be scrapped, with the flat rate of 10 per cent only rising to a maximum of 20 per cent on death estates of more than £2m.

The cross-party group of MPs pointed to evidence which showed rates above 20 per cent start to incentivize tax planning and by cutting rates the rules would lead to less tax avoidance.

The chairman of the APPG, said it was clear the tax raised “strong opinions across the political spectrum” but warned the current way the tax was levied, and its reliefs led to a “strong sense of injustice”.

The rich get away with not paying and IHT is perceived as an unfair penalty on hard working savers.

“Our bold proposals for reform seek to address this unfairness by simplifying the system and ensuring that the higher value estates that currently take advantage of so many reliefs and exemptions actually pay some IHT.”

The report also moved to end large amounts of money being passed on free of tax by lifetime gifts, calling instead for sums of more than £30,000 each year to be taxed instantly at 10 per cent.

One commentator has warned, however, that simplicity may also lead to some people losing out and taxpayers would now need to think carefully about lifetime gifting.

It remains to be seen of course to what extent, if at all, the MPs recommendations will be implemented or indeed when, particularly in view of the impending Budget due next month.

A Treasury spokesperson said: “Inheritance Tax makes an important contribution to the public finances. We keep the tax system under constant review and will consider the APPG’s findings.”


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Julian Kaye