Hello readers,
This is something that can be a real pain for many individuals and as house prices continue to increase, inheritance tax is often seen as being the government stealing money when someone dies. Certainly, funds and assets can largely be shielded through use of a trust, but that’s not something everyone has the knowledge of or can afford to set up.
Seen as a scandal by many, the end may be in sight as I have recently been reading about proposals to scrap the tax altogether!
Inheritance tax (IHT) is usually 40% on the value of an estate above a threshold of £325,000 and this is currently frozen until 2025/26. The OBR predicts that IHT receipts will equal £7.2bn in the 2023/24 tax year.
Inheritance tax receipts have risen steadily over the past two decades and because of the value they represent (particularly during an economic crisis as we have right now), my question is whether the government are seriously considering scrapping it or if it’s the beginning of some form of election campaign.
Inheritance Tax Receipts 2001 – 2022
Looking back at the history of inheritance tax, I have found that the earliest form of inheritance tax was the Stamps Act of 1694 introduced a form of inheritance tax known as “Probate Duty” as a means of generating revenue to support England’s participation in the Nine Years’ War or the War of the League of Augsburg, which began in 1688.
Probate Duty was levied on the estates of individuals who had passed away and was calculated based on the value of the deceased person’s assets. It was essentially a tax on the transfer of wealth from one generation to the next.
So, given the history, my question is whether the government really, seriously mean it when they say they’re thinking of scrapping it altogether or whether what they mean is ‘reform’ or ‘changing’ it.
Let’s look at what we know from the media…
The Guardian reads:
“Downing Street is reportedly holding talks about making the scrapping of inheritance tax (IHT) part of its manifesto pledge in an attempt to win over votes in the next general election.
No 10 is discussing whether to make abolishing the levy a key commitment in its manifesto to try to shore up votes in “blue wall” seats, according to the Times.
Supporters argue the policy could be a gamechanger in the south of England, where the Conservatives are defending constituencies vulnerable to gains from opposition parties, according to the paper.
It said abolishing IHT was being considered as a manifesto pledge, rather than a policy to be implemented next year.”
Speaking to Sky News, Number 10 comments:
“It’s “future-scoping speculation”, Number 10 told Sky News, and “requires a different kind of economic environment to the one we’re operating in”.”
What to believe… what to trust… will this pledge really appear in the Conservative manifesto or was it leaked to the press to gauge opinion?
I think that what this does demonstrate is how the Conservatives know the next election is likely to be something of a serious battle if they want to hold onto power and should be another sign to investors, warning of the potential risks of a change in political landscape.
Yes, I think that scrapping (or reforming) IHT would potentially be a positive thing, but as with any drop in government revenue the question is where the pot will be topped up from.
Quoting from the Daily Mail, we read about how reducing income tax (and perhaps event corporation tax) might be a more helpful and realistic strategy:
“One Red Wall Tory told The Mail on Sunday: ‘There are better tax cuts to be made. For voters in both the Red and Blue Walls, it’d be better if we shored up support by raising the 40p [income tax] threshold to £75,000 and also cut the basic rate of income tax.’”
This is certainly an interesting debate!
What can us property investors learn from this? Well, I don’t think there is much we can learn right now apart from reading and following with keen interest.
What it does remind us however, is when assessing any investment strategy it’s crucial to bear in mind the political landscape and potential upcoming policy changes. Yes, there are a lot at the moment and as investors it’s so very important to keep up to date!
What do you think? Will this policy change or even appear in the manifesto, or is it simply a potential pledge that will be conveniently forgotten after polling day?
Hasan
