The Government is looking at plans to completely abolish inheritance tax.
Reports suggest the Conservatives could go further than ever before with their proposal to abolish the hated tax entirely, rather than just reduce rates or increase the threshold.
Scrapping IHT altogether would possibly create a clear tax dividing line with Labour ahead of the next general election.
But Downing Street is pushing back against the renewed speculation with Sunak’s deputy spokesperson emphasising that fewer than four percent of estates paid the tax.
They said: “The vast majority of estates do not pay inheritance tax and the tax is forecast to contribute almost £10 billion a year by 2028-29 to help fund public services that millions of us rely on.”
Earlier this month latest IHT tax data showed receipts from April to November 2023 were £5.2 billion – £0.4 billion higher than in the same period a year earlier – meaning more tax was paid in just six months than in the entire year a decade earlier.
Due to fiscal drag, where incomes have increased while tax thresholds have stayed the same, thousands of households have been dragged into paying this tax.
Some Conservative MPs have called for the £325,000 tax-free threshold to be raised as it has been increased in over 10 years.
If this were implemented, fewer estates would have to pay inheritance tax and those who do will pay less.
When do you pay inheritance tax?
People need to own assets worth over £325,000 if they are single, or £650,000 jointly if they are married or in a civil partnership, for their loved ones to have to the dreaded tax upon death.
But there is a further chunky allowance which increases the threshold to a joint £1million if one has a partner, owns a property, and intends to leave money to their direct descendants.
Once an estate reaches £2million this own home allowance starts being removed by £1 for every £2 above this threshold. It vanishes completely by £2.3million.
If someone is worth more than this, their beneficiaries will have to hand over 40 percent of their assets above those levels to the Government.
It should be noted that recent HMRC figures have shown that less than four percent of estates in the UK paid inheritance tax between 2020 and 2021. Despite this lower figure, this is set to nearly double to over seven percent within the next 10 years.
However, those who are caught in the threshold can plan ahead and help their loved ones avoid the levy.
Beneficiaries will have to pay inheritance tax at the end of the sixth month after they die. And the tax must be paid before the executors to their estate are granted probate, which allows them access to and control over your funds.
If people can pay the money upfront, many can pay in instalments – though they will be charged interest. Common solutions are a specialist loan, or an insurance policy taken out in advance, experts have stated.
How to lower one’s bill
As a way to decrease the bill, Britons can use gifting. There’s no limit on what people can gift, tax-free, to their spouse or civil partner, and everyone has an annual exemption of £3,000 that they can give away each year, free of IHT.
People can also give up to £250 away to as many people as they’d like each year, without it counting towards their £3,000 allowance.
People can also make unlimited tax-free gifts if the money is being given regularly from their salary or their pension income – provided it doesn’t affect their own living standards.
There are also special exemptions if someone is giving money to someone for their wedding.
