Chancellor may scrap inheritance tax

In Industry Insights by woateam

Chancellor of the Exchequer Sajid Javid has hinted that the government is poised to either scrap or make reforms to the unpopular inheritance tax regime later this year.

Speaking at a Conservative Party conference fringe event organised by the Institute of Economic Affairs and the Taxpayers’ Alliance, Mr Javid said although reforms have already been made to IHT, scrapping the tax altogether is something that the government may consider in the near future.

The chancellor acknowledged the unpopularity of IHT among the public with claims that it is unfair that people’s income gets taxed both in life and at death.

Mr Javid said: “I shouldn’t say too much now, but I understand the arguments against the tax.

“I do think that when you pay taxes already through work or through investments and capital gains and other taxes, there’s a real issue with then asking [individuals], on that income, to pay taxes all over again.

“Sensible changes have already been made [to IHT], but it is something that is on my mind.”

Any such reforms to IHT could be made sooner rather than later as the chancellor also declared there would be a budget before the end of the year. 

As Mr Javid noted, a review of inheritance tax rules is already underway in order to simplify the system. 

Under current IHT rules estates worth £325,000 or more are liable for a 40 per cent tax charge.

However, no tax is paid if the estate is valued at less than £325,000 or if anything above this threshold is left to a charity, spouse, civil partner, or a community amateur sports club.

There is also a residence nil-rate band, which came into effect in 2017 and is an additional threshold available where the deceased left a residence, or the sale proceeds of a residence, to their direct descendants.

The amount of IHT paid has risen steadily since 2009/10 when the government froze the nil-rate band at £325,000. As the band hasn’t adjusted with inflation, more and more estates are falling into the net of IHT.