Cut inheritance tax burden for middle class and stop avoidance by richest, IFS urges
Families would save £180,000 if the Chancellor halves inheritance tax in next week’s Autumn Statement, the Institute for Fiscal Studies (IFS) has said.
Jeremy Hunt is understood to be planning a cut to the levy, with a report in The Times suggesting he could reduce the rate from 40pc to 20pc.
The IFS, a think tank, said the 5pc of grieving families who pay the largest amount of inheritance tax would see their bills reduced by £180,000 if the rate were halved.
Those in London and the South East would benefit most, as rising house prices in these areas have dragged an increasing number of ordinary families into paying the tax.
David Sturrock, senior research economist at the IFS, also urged the Chancellor to reform the tax to make it harder for the richest to avoid paying it.
Britain’s wealthiest pay lower rates of inheritance tax than families inheriting much smaller estates because they have far more tax reliefs at their disposal.
Mr Sturrock said: “If the Chancellor decides to cut inheritance tax, now would be a good time to make the system fairer and more efficient by eliminating or capping the various poorly designed reliefs that exist in the system.
“This would shift the burden of taxation towards the largest estates. Cutting the rate without reforming the tax would mean a missed opportunity to rationalise the system and represent an unadulterated cut for the largest estates.”
The think tank urged the Chancellor to cap reliefs for business and agricultural assets at £500,000 per person and bring pension pots into the scope of inheritance tax.
Inheritance tax receipts are expected to more than double from £7bn in 2024-25 to £15bn by 2032-33 amid frozen tax thresholds.
One in eight taxpayers are expected to pay the levy in the next decade.
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The IFS said a cut to inheritance tax would be less inflationary than most other tax cuts because the beneficiaries would be more likely to save the proceeds than spend it.
The Chancellor has previously been cautious about tax cuts that could add to inflation, which remains above the Bank of England’s target of 2pc, making inheritance tax a safer option.
Bereaved families who will see the biggest benefit from an inheritance tax cut live in the Home Counties, which largely voted Conservative in 2019, the IFS said.
Labour-supporting seats in the North and West of London, and in Edinburgh, would also receive a boost.
The 1pc of families with the biggest estates would gain an average of £500,000 if the tax rate were halved.
The IFS said the UK has a high headline inheritance tax rate by international standards, and a cut would make it more similar to some other European countries.
Adding to the pressure to cut taxes, separate research carried out by the House of Commons Library has found that the per person tax burden in Britain is now the highest on record.
According to the analysis, the per person tax burden hit £13,865 in 2022/23 – the highest figure in data stretching back to 1946.
This has increased by £2,625 since the Conservatives came to power in 2010.
Labour, who commissioned the research, said the Tories had been responsible for 25 tax rises since the 2019 general election.
Shadow chancellor Rachel Reeves said: “The economy is not working. After 13 years of economic failure, families are worse off, with higher taxes, higher mortgage payments and prices still rising in the shops.
She went on: “The 25 Tory tax rises since 2019 are the clearest sign of Rishi Sunak’s economic failure.
“The Conservatives have become the party of high tax because they are now the party of low growth.”
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