There are a number of elections around the world – the pontifications, point-scoring, own goals and blotted copybooks are all about to garner increased scrutiny. Whispers of good news into ears in attempts to win over voters. The next UK election has to be held by 28th January 2025 and we all tend to suspect that the current bunch will continue to attempt to restore a modicum of decency and sound policy before announcing one.
The rumours of the death of inheritance tax appear to have gained some traction, this is of course all largely leaked hearsay, or in other words think tank testing popular opinion. The conundrum of taxes is simply that we all know that they are needed, but few of us can see that the money is used wisely. Some of our fellow humans seem to enjoy paying tax, able to clearly see the collective value in how, what and why it is deployed. Here in the UK, we may get a standardised pie chart of where it went, but the numbers are invariably so vast that they have very little connection with us.
Inheritance tax is one of the most loathed taxes. This is probably because most of us (the middle classes) have earned income, which has already been taxed. Savings or investments, entrepreneurial or retail have had taxes applied, albeit with some allowances granted. IHT is a bit like being given a tax bill again, once you have done all the sensible things and have something left to leave your family or beneficiaries.
A tax rate of 40% also seems fairly high (by tax rate standards) much higher than capital gains taxes and higher than most people pay as income tax. It was seven Chancellors ago when a certain George Osborne who last messed around with IHT, adding an allowance for those who had a home and children to inherit it. The Main Residence Relief was ushered into existence from 6th April 2017, now granting an extra £175,000 of exemption (in addition to the £325,000 nil rate band that everyone gets). It would be too easy to have simply increased the latter to £500,000, instead, this is the making of the Humphrey Appleby’s where what you appear to have can be withdrawn in the wrong or right circumstances, depending how you count and what you count.
So the latest whispers of the abolition of inheritance tax, garner a keen ear and of course the intention is that those convert into votes. Taxes as bribes? It was ever thus. IHT has been raising substantial sums for HMRC over the years and each year the sums tend to increase. The latest data April to August 2023 showed IHT receipts of £3.2bn, up £0.3bn. In the tax year ending 2022-23 £7.1bn of the total £786.69bn HMRC received from all sources. I make that about 1% in round numbers.
Combined with this potential good news is a classic ‘Humphreyism’ in that the current inheritance tax exemption on pension funds may be … well, challenged. There already are possible taxes, depending on how conveniently you can arrange your death before age 75 or how the money is taken. However, this appears to be within the range of the ministry of misinformation and may well be that classic case of rearranging the deckchairs on the Titanic.
We will keep you posted with facts as they arise, assuming they are clearly disclosed by Humphrey and his chums.