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IHT to be scrapped?

12th Jun 2023
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There's a movement afoot seeking the abolition of inheritance tax (IHT). Some 50 MPs have denounced the tax and the Daily Telegraph is fronting the campaign. Could it really go?

saving for inheritance
Adobestock

Here’s a brief summary of some of the arguments for and against abolition:

  • it is “morally wrong” to tax savings when they are in effect already the residue of taxed income;
  • most “wealth” owned by the middle class comes from house price inflation, which is neither taxed nor earned income;
  • house price inflation only keeps householders in a static state vis-à-vis the housing market (not even that when SDLT is taken into account), it does not generate any actual wealth;
  • it was Nadhim Zahawi who described IHT as “morally wrong” and in view of his widely publicised tax penalty problems, anything he says may be discounted;
  • IHT was always supposed to be a tax on the rich, not on the middle class but the rich avoid it easily, so it falls disproportionately on the wrong target;
  • IHT should be beefed up so that the rich cannot avoid it, rather than being abolished;
  • IHT only raises £7 billion a year, so it’s hardly worth keeping;
  • the UK would have to raise £7 billion a year from somewhere else in the absence of IHT;
  • IHT allegedly discourages inward investment into the UK;
  • maybe an unavoidable wealth tax would be a better alternative;
  • IHT causes people to make important life decisions on tax grounds, rather than on what is best for their families;
  • IHT is a good thing because inheritance in itself is not a good thing, being detrimental to the recipient’s ability to learn to contribute to society;
  • IHT is very unpopular (apparently Gordon Brown postponed an election he was expected to win because George Osborne was promising to raise the IHT threshold to £1 million);
  • IHT is very popular (with the considerable majority of people who don’t risk paying it).

Many more arguments have been aired, most of them concerning “fairness” (which is a concept this blog eschews, on the basis that it means too many different things to be a useful benchmark). However, it is fair to say that the above arguments do not appear to tip the balance strongly in favour of either abolition or retention. As usual, any decision will doubtless be taken on political grounds.

Here’s a thought, though: if too much attention is paid to the wrongs of the current IHT, might it not be replaced with a 100% charge, with no exemptions, to pay for high-quality, free-to-all, adult social care?