The latest research by Final Duties, the UK’s most experienced probate brokers, reveals that an abolition of inheritance tax would save UK taxpayers over £5 billion a year while removing less than 1% of the government’s tax income, a move that would appeal directly to traditional Tory supporters.
Almost every time the UK government has delivered a budget in recent years, analysts have speculated about the possibility of changes to inheritance tax (IHT). With an election looming, there’s murmurings that we could finally see it overhauled or even scrapped in this week’s Budget.
Final Duties has analysed the latest inheritance tax liability data and HMRC receipt data* to understand what impact an end to inheritance tax would have on taxpayer wallets and the tax income that our country relies on to fund public services.
Final Duties’ analysis of the latest inheritance tax liability data* reveals that, in the financial year 2020-21, the UK’s total inheritance tax bill came to £5.1 billion.
This figure is an astonishing 99.1% higher than the total was a decade earlier when in the year 2010-11, the total came to just under £2.6 billion.
It’s worth noting that one reason for this large increase will be rising house prices. Inheritance tax is only applied to estates valued at £325,000 or more, with this threshold increasing to £500,000 for direct descendants of the deceased, such as their children. Rising property prices means more and more estates are being pushed above this threshold resulting in larger inheritance tax income for the government.
On a regional level, the biggest increase in inheritance tax payments has been recorded in the North East where the bill has risen by 153.8% in the last decade. This is followed by the West Midlands (137.4%), East Midlands (126.3%), East of England (120.3%), and London (111.7%).
But would scrapping inheritance tax create too much of a loss of income for the UK government and its economy to handle? Further analysis of HMRC receipts (2023) data by Final Duties suggests not.
That’s because in 2023, inheritance tax receipts accounted for just 0.91% of all HMRC tax income. And while this is almost double the proportion that inheritance accounted for in 2010 (0.59%), it’s also such a small slice of the tax pie that the government would be unlikely to miss it should it be scrapped.
Another important observation is that inheritance tax actually affects very few people in the UK. As was recently reported by The Times, just 4% of estates have such a high value that they subject to inheritance tax, meaning that abolishing it will only actually impact the nation’s most wealthy people.
It is, therefore, a policy that will appeal to the wealthier corners of society. For a struggling incumbent Tory party that needs to galvanise support from traditional Conservative voters, this means abolishing the tax could help keep hold of core ballots without doing too much damage to the nation’s economy.
Jack Gill, managing director of Final Duties, said, “As the general election gets closer, the government will be keen to make a splash with a headline statement designed to win favour ahead of the next election. Having already shied away from a proposed 99% mortgage policy, it seems that abolishing inheritance tax might be the best trick they have up their sleeve.
The reason such a policy might work is because it appears, on the surface, to be a generous tax break at a time when so many are struggling financially. It also appeals to the Tory stronghold with whom the idea of being taxed on the assets you have gained through a lifetime of hard work doesn’t sit well.
However, it’s fair to say that abolishing inheritance tax isn’t actually that big of a carrot to dangle in front of soon-to-be voters, accounting as it does for such a small slice of the tax pie.
It’s also fair to say that it would make very little difference for the majority of people because, as was recently reported, only 4% of estates in the UK are actually subjected to inheritance tax. So if an abolishment does make a difference, it will only be for the most wealthy corners of society.”
