The Conservative backbenches are revolting with income tax, national insurance and corporation tax all rising under Rishi Sunak.
Desperate to make a case for lower taxes on family finances, former cabinet members, including Nadhim Zahawi, call for another tax to be abolished altogether – inheritance tax, or the so-called “tax on death”.
But does the case for scrapping it stack up? We take a look…
What did Nadhim Zahawi say? In a column for the Daily Telegraph, the former chancellor described the levy as “a spectre” that haunted Britain and warned it is “morally wrong to take someone’s assets on their death”. He also claimed it causes “distortions” in how families handle their finances as they attempt to avoid leaving an inheritance tax bill. Does anyone else in the Tory party agree? Yes. Zahawi already has the support of former home secretary Priti Patel and the poster boy of the Tory right, Jacob Rees-Mogg. Former minister Ranil Jayawardena has also added his support, saying: “We need to be bold and abolish inheritance tax altogether – no ifs, no buts. It’s a death tax.
Exploring the Pros and Cons of Scrapping Inheritance Tax
” Why now? More than 50 Conservative MPs want the government to commit to this new policy before drawing up the manifesto for next year’s general election. They say action must be taken quickly because the threshold at which legacy tax is paid has been frozen since 2010, and rising house prices mean that many families are now facing a bill after suffering a bereavement. They’re right, aren’t they? Having so many people paying the tax is unfair. However, only some people do. In the tax year 2019-20, the last for which data is currently available, only 3.7% of deaths in the UK resulted in an inheritance tax bill for their family. Really? So how much would I need to leave behind for my family to face a tax bill? No tax is payable on any estate under £325,000, and assets left to a husband or wife are tax-free. If a parent dies after inheriting the other parent’s estate, both allowances are passed on to surviving children. That means when a second parent dies, no inheritance is paid by children inheriting an estate of up to £650,000.
One of Britain’s leading leftwing think tanks has proposed the scrapping of inheritance tax after concluding that vehement opposition to the levy from across the political spectrum made it too toxic to save.
Assessing the Equity of the Tory Plan
The Fabian Society said the confirmation from a series of focus groups after the May general election manifested that Labour voters were as hostile to inheritance tax as Conservatives. The think tank said the tax, seen as illegitimate and unfair by voters, should be replaced by levying income tax on gifts and bequests.
Andrew Harrop, general secretary of the Fabian Society, said the “shocking” finding had been the opposition of people on the left to inheritance tax. “The public sees the value of the tax system, and they want it to be fairer, simpler and more progressive. But some taxes are now beyond the pale, even for people who support progressive measures. Inheritance tax is seen as unfair and insensitive even by left-leaning voters, and has become too toxic to save.”
Harrop added that levying income tax on those receiving inheritances would be an excellent alternative to inheritance tax and work with current policy’s grain. George Osborne’s reforms have allowed pensions to be inherited, but those benefiting have to pay income tax.
The chancellor also announced in his summer 2015 budget that after 2020, a couple could leave a £1m property to their children or grandchildren without paying any inheritance tax.
Anticipating Effects of Scrapping Inheritance Tax
Fabian said it had reached its conclusion after holding four focus groups in Exeter, Leicester, Stockport and Watford in May. Each group comprised an even gender split and a range of ages from 24 to 60 and reflected the local distribution of voters between the Conservatives, Labour and Liberal Democrats.
“On the whole, the focus group participants argued for wealth to be more fully taxed,” the report said. “But they were almost unanimously opposed to inheritance taxation, regardless of their political views.
“Their arguments were striking, emotive and mostly unequivocal. These discussions were excellent examples of how people can hold fundamentally contradictory views simultaneously. People believe that wealth should be taxed and inequalities of wealth reduced, but inherited wealth should not be touched.”
