Reform IHT to help pay for the cost of Covid-19, say inheritance planning professionals
The UK Chancellor should scrap inheritance tax (IHT) and replace it with a radical new alternative to raise more revenue and help pay for the cost of Covid-19 support measures, according to a survey of over 500 professionals who advise families on inheritance planning.
Some 57 per cent of professionals including solicitors, tax advisers, financial planners and accountants who took part in a recent STEP survey support proposals by MPs for the current IHT regime to be replaced with a simpler flat rate, with far fewer reliefs and exemptions. The respondents represent clients from all levels of the wealth scale, including middle income families whose home is their main asset and therefore are affected particularly adversely by IHT.
Overhauling IHT is more popular as a revenue raiser than either a one-off wealth tax or an annual wealth tax, with 36.2 per cent of respondents favouring the IHT route while the other options are preferred by 29.04 per cent and 12.88 per cent respectively. The findings come ahead of “Tax Day” on 23 March, when the Government is due to consult on a series of big tax changes.
A 2020 report by the All-Party Parliamentary Group for Inheritance & Intergenerational Fairness called for the introduction of a “flat-rate gift tax” to sweep aside the current IHT system’s array of reliefs and exemptions. The proposals would tax all lifetime and death transfers of wealth, with very few reliefs and a low flat rate of 10 per cent (the current rate is 40 per cent). Rates would reach a maximum of 20 per cent on estates of over GBP2 million.
Today’s STEP survey finds that 65 per cent of inheritance advisers agree with the APPG recommendation of a 10 per cent flat rate as the best way to simplify the IHT system and discourage avoidance by wealthier families. Just under half (45.8 per cent) of respondents agree that GBP2 million is an appropriate threshold for estates to pay the higher rate, while 28 per cent think it should be higher and 7.6 per cent think it should be lower.
Emily Deane, Technical Counsel at STEP, says: “The current IHT system is complex, ineffective and unfair. Our survey shows there is strong support by practitioners who know better than anyone the complexity of IHT and a new system, like the one recommended by the APPG, is the preferred route the Chancellor should take to raise funds to pay for the cost of Covid-19 support and sort out an unjust tax.
“A broadly based low-rate tax with few reliefs and exemptions is far preferable than a tax with a high headline rate that the well advised can avoid by use of complex reliefs and exemptions. The flat rate proposed by the APPG would apply across the board and lead to less avoidance while keeping the UK attractive for wealthier individuals.”
John Stevenson MP, Chair of the APPG for Inheritance & Intergenerational Fairness, says: “Our report in 2020 concluded that fundamental reform of IHT is badly needed. Reform would simplify the system, reduce red tape, be fairer and is likely to provide extra tax revenue. We call on the Chancellor to look at fundamental reform of this unpopular tax as Tax Day approaches.”