Over the threshold?
Inheritance Tax is back on the political agenda as bills hit post-recession highs.
When the UK economy finally returned to its pre-financial crisis growth level this summer, Chancellor George Osborne was in receipt of other news that perhaps only he welcomed: Inheritance Tax (IHT) bills of £3.4 billion had almost touched levels last seen in 2008. Households paid more in IHT last year than at any point since the start of the recession. HM Revenue & Customs’ (HMRC) receipts from IHT increased by 8.6% over the last year as 15,976 estates were caught by the tax.
The rise in death duties reflects the recent surge in residential property prices, as well as the strong recovery in other asset values, which has dragged more households into the IHT net. Residential property now makes up around a third of the total value of taxpaying estates, according to HMRC. Moreover, as the average value of estates continues to rise, an increasing number of estates will be valued over the IHT threshold, or ‘nil-rate band’, of £325,000 which the UK government has committed to freeze until 2018.
Figures from the Office for Budget Responsibility (OBR) forecast that the number of families that will be hit by IHT over the next five years is set to double from one in twenty estates to almost one in ten. The OBR also predicts that death duties will add £5.8 billion to the Treasury’s coffers in 2018/19.
Of course, the taxation of wealth on death is nothing new. Winston Churchill, when he was Chancellor of the Exchequer in 1925, argued that inheritance tax was “a certain corrective against the development of the idle rich”. Whether or not such a point of view would win many votes 90 years later, politicians nowadays campaign on the impact of the tax on people who have “worked hard and saved all their lives”, as Chancellor George Osborne said at the recent Conservative Party conference.
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Back in 1992, the Conservative manifesto claimed that IHT tended to fall on “people who are not rich enough to engage in high- powered tax planning, or who, for lack of knowledge or advice, fail to take the necessary precautionary action”.
But now, as then,
the mitigation of IHT does not require high- powered tax planning; only a willingness to discuss the issue, take action and make use of the many options available. Data from the Office for National Statistics shows that IHT exemptions and reliefs were worth £15 billion in the last tax year – six times the value of IHT that was collected in 2011/12 – which suggests that there are plenty of tax-saving opportunities available.
For many, IHT is still the “voluntary tax” that Roy Jenkins MP claimed so memorably more than a quarter of a century ago.
What is for certain is that Inheritance Tax is again on the agenda of the main political parties – and even more so in the wake of the recently announced changes to the taxation of pension death benefits. The Conservative Party resurrected earlier this year its pledge to increase the IHT threshold. (A rise to £1 million was first proposed back in 2007 and again at the last election, before it was opposed by the Liberal Democrats and abandoned.) UKIP has also challenged the Tories to match its proposal to scrap the tax altogether. IHT is set to be a focus for political debate in the run-up to the 2015 general election. The levels and bases of taxation, and reliefs from taxation, can change at any time and are dependent on individual circumstances.
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