Rishi Sunak “Considering Cutting Inheritance Tax”

Newspapers and social media were abuzz at the weekend, with the rumour that Rishi Sunak is contemplating a significant change to inheritance tax. Why? Some say he’s trying to gain voter favour and make a clear distinction between the Conservative Party’s stance and that of Labour. The key idea floating around is not only to reduce this 40% rate in the upcoming March budget but to also completely get rid of the inheritance tax in the future. This revelation comes from the Sunday Times, citing inside sources from the government. They said, “As part of his pledge to announce a series of long-term decisions designed to change Britain, Sunak would frame the policy as an ‘aspirational offer to voters’ ahead of the general election.”

Despite the buzz, Downing Street seems to be sidestepping the topic. Official word says there’s no formal plan in motion. Yet, one senior government source mentioned that inheritance tax is Britain’s “most disliked tax,” asserting that people resent being taxed twice: first when they earn the money, and then when they pass it on after death, especially during the tough times of mourning.

What the Numbers Say

To give perspective, for the tax year 2020-21, just a bit over 3.7% of all UK deaths led to any inheritance tax being charged. This effectively means that nearly 96% of people are unaffected by this tax.

Labour MP Darren Jones has weighed in on the issue, pointing out that getting rid of inheritance tax is equivalent to slashing government revenue by a whopping £7.2 billion annually. He emphasises that the majority never pay this tax and suggests that the real economic threat is the Conservative party’s approach.

The Bigger Picture: Pensions in Play

While the inheritance tax has grabbed attention, another matter of importance is the pension “triple lock”. This is a guarantee that pensions will increase each April by the highest of three determining factors: average wage growth, inflation, or a flat 2.5%.

Rishi Sunak is reportedly committing to this triple lock for the foreseeable future, despite its high cost. In plain terms, the current full-rate state pension stands at £203.85 weekly. Due to the triple lock, this will rise by over 10% to £221.20 next year. Ditching this guarantee, as some had proposed, seems to be off the table as its political repercussions would be severe.

In Conclusion: What’s Next?

It’s evident that while there’s chatter about changing the inheritance tax system and confirming pension commitments, concrete decisions are yet to be made. However, it’s essential to keep an eye out on these developments. After all, these decisions can have a profound impact on your personal finances and the country’s economic landscape.

UpdateThisIsMoney looks deeper :-

Potential Reforms Under Consideration

Given the discussions around reforming the Inheritance Tax, several options have surfaced:

  1. Upping the Threshold: One idea is to simplify the current system. Instead of the £325,000 threshold and the extra property allowance, the government might consider a straight £500,000 allowance for everyone – or £1 million for married couples.
  2. Reducing the Tax Rate: The 40% tax rate on inheritance could be decreased. Another possibility is introducing a tiered system or sliding scale for taxation.
  3. Eliminating the Tax Altogether: Though a bold move, completely getting rid of the Inheritance Tax is a thought. But it’s considered unlikely due to the significant financial implications for the government.
  4. Tweaking Gifting Rules: Presently, you can gift someone £3,000 a year without it being subject to tax. This rule hasn’t seen change since 1981. Revisions to these rules could be on the cards, especially since the idea was floated four years ago but no action was taken.

Expert Opinions on the Matter

What are the financial gurus saying about all this?

  • Rachael Griffin of Quilter believes that any reform would be seen as a political gamble. Although cutting or eliminating a tax that many view as unfair would be popular, it’s important to remember that the government is set to make £8 billion from it this year. Eliminating such a large revenue source might lead to new forms of wealth taxation in the future.
  • Sean McCann from NFU Mutual points out the inherent complexities and unfairness in the current system, especially regarding unmarried partners and those without children. He stresses that the tax’s intricacies make it ripe for reform.
  • Ian Dyall of Evelyn Partners mentions that many families would welcome a rate cut, especially those who feel they’ve been taxed enough already. However, increasing the nil-rate band might be a more effective solution given inflation and the growing number of families falling into the IHT net.
  • Rachel Carrington-Matthews at Hedges Law emphasizes the need for a system review, especially with the freezing of the £325,000 nil rate band for over a decade and the unchanged £3,000 gifting allowance since 1981.

It’s clear that discussions about Inheritance Tax reforms are gaining momentum. Whether we’ll see significant changes remains uncertain. However, given the growing concerns about the current system’s fairness and relevance in today’s economic climate, some level of reform in the coming years seems increasingly likely. As always, it’s crucial to stay informed and seek expert advice if you have specific concerns about your estate and potential tax implications.