Downing Street is reportedly discussing the possibility of scrapping inheritance tax as a key pledge in their manifesto for the next general election to gain voter support, particularly in the ‘blue wall’ seats in southern England, where the Conservative party face numerous challenges from opposition parties.
Inheritance tax has been a popular topic of discussion, as many people wish to pass on the wealth they have worked hard to accumulate to the next generation, without a significant portion being taken by the state. Despite the fact that most people’s estates do not reach the threshold for paying inheritance tax, the proposal to abolish inheritance tax consistently enjoys high public support, due to its symbolic significance in representing the country’s aspiration for individuals to have more control over their wealth. It is therefore expected to become one of the crucial cards in the Conservative party’s election campaign.
However, there are numerous opposing voices to this proposal as well. Some argue that abolishing inheritance tax should not be the government’s top priority at present, and many experts have suggested that instead of complete abolition, a comprehensive reform of inheritance tax would be more sensible. Against the backdrop of rising cost of living, the Conservative party faces significant pressure, as it lags behind the Labour party in the polls. The Prime Minister Rishi Sunak is still striving to achieve his target of halving inflation by the end of the year, and the Chancellor also has emphasised the importance of tackling inflation over any new tax cuts.
Another viewpoint advocates for reform rather than abolition. Currently, the policy sets a 40% inheritance tax rate for estates worth over £325,000, with spouses and civil partners having an exempt amount of up to £1 million. Paul Johnson, the director of the Institute for Fiscal Studies (IFS), has argued that the existing inheritance tax policy is unfair, as the very wealthy with million-pound estates pay a lower average tax rate than the moderately wealthy who leave behind family homes. Property is the type of asset that is hardest to avoid inheritance tax, while cash deposits and other assets can be tax-efficiently handled. Johnson believes the current policy may therefore actual benefit the wealthy.
However, regardless of the debate, only a very small percentage of estates will be subject to inheritance tax, with the Treasury stating that over 93% of estates in the coming years will not have any inheritance tax liability. However, the remaining less than 7% of estates will contribute over £7 billion in tax revenue annually, which can be used to fund the public services that many people rely on in their daily lives. Therefore, it can be expected that the elimination of inheritance tax would also have a certain impact on public sector debt.v