Scrapping inheritance tax will help the wealthiest but the burden on people with “more modest” estates will rise as the Government has to plug the gap in its finances somehow, an expert has claimed.
Prime Minister Rishi Sunak is rumoured to be mulling the axing of inheritance tax in a move which some have said will be popular with voters.
Amal Shah, a partner at London based chartered accountants Gerald Edelman, told Express.co.uk if inheritance tax (IHT) were to be abolished, the Government would have to find another way to collect the lost revenue.
He said: “We have got to look at what has happened in the last 10 years. Inheritance tax receipts have gone up by £3billion and are forecast to double.
“At the moment approximately four percent of estates pay inheritance tax, which is not as much as the public perceives.
Click here to join our Whatsapp community to be the first to receive the latest politics news
READ MORE… Sunak facing full scale revolt as Tory peer calls on donors to defund the party
“If the Government abolishes IHT, they are going to have to find a method of collecting the lost revenue as well as to plug the tax gap and make the system fairer, which is likely to have an impact on those with modest estates not subject to IHT as other taxes will need to increase to fund the deficit.”
IHT is levied on the property, money and possessions of someone who has died, but there is normally no tax to pay if either the value of the deceased’s estate is below the £325,000 threshold or everything above that threshold is left to a spouse, civil partner, charity or community amateur sports club.
If a person gives away their home to their children or grandchildren, then the threshold can increase to £500,000.
Mr Shah said more estates are now falling into IHT because bands are not going up with inflation or house prices.
He predicted the Government will not abolish IHT, but instead make reforms to current legislation, for example by inserting further bands.
The tax expert said: “The Government could tweak the £325,000 nil rate and £500,000 residential nil rate bands or introduce limits on Business Property Relief or Agricultural Property Relief.”
Kemi to savage Rejoiners in fiery speech with Keir Starmer Brexit U-turn warning[REVEALED]
Suella Braverman lashes out at Elton John, Gary Lineker and the ‘virtue-signa…[REPORT]
Liz Truss piles pressure on Rishi Sunak and demands he ‘axe the tax'[LATEST]
Business Relief and Agricultural Property Relief allow some assets to be passed on free of IHT or with a reduced bill.
Mr Shah warned abolishing IHT could also have an impact on the AIM market, investments in which can be shielded from inheritance tax after being held for two years.
Joe Neal, tax manager at Blick Rothenberg, has said most voters will see no benefit if IHT is abolished because they will never pay it anyway.
He said: “In the 2020/21 tax year, just 27,000 out of 722,000 deaths incurred any IHT, which works out as just 3.73 percent.”
Think tank, the Institute for Fiscal Studies (IFS), reported last week that scrapping IHT would come with a fiscal cost which would grow over time.
We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info
The IFS said that as inheritances grow in importance, IHT revenues will too. Its analysis suggests such growth will be much stronger than official forecasts, increasing revenues from around £7bn in the current year to about £15bn in 10 years’ time.
Among the findings of the IFS report, backed by Citi and the Nuffield Foundation, one in eight people (12 percent) will have inheritance tax due either on their death or their partner’s death by 2032–33.
The analysis puts the current cost of abolishing IHT at £7bn with just below half (47 percent) of the benefit going to those with estates of £2.1m or more at death. These make up the top one percent of estates and would benefit from an average tax cut of around £1.1m.
The 90 percent or so of estates not paying IHT would not be directly affected by such a reform, according to the report.
Meanwhile, another study from Demos and abrdn Financial Fairness Trust involving more than 100 members of the public has challenged the widely held belief IHT is universally unpopular.
There was universal recognition scrapping IHT could cause “unacceptable” trade-offs, such as tax rises elsewhere or spending cuts hitting public services during a cost-of-living crisis, according to the study.
Most saw the tax as “fair and justified” as long as the threshold is set at the right level, according to the study.
Mubin Haq, CEO of abrdn Financial Fairness Trust, said: “The public are increasingly savvy that tax cuts come at a price.
“Whilst inheritance tax is far from popular, even many of its staunchest opponents are worried it could lead to either tax rises elsewhere or cuts to valuable public services which have already faced years of severe under-funding.”
Source: Read Full Article