Cutting inheritance tax 'not as simple as its proponents suggest', warns IFS
21 Nov 2023
Ahead of the 2023 Autumn Statement tomorrow, the Institute for Fiscal Studies (IFS) has warned that cutting the inheritance tax (IHT) rate 'is not as simple as its proponents suggest'.
Reports have been rife that Chancellor Jeremy Hunt is set to cut IHT rates in the Autumn Statement.
The IFS stated that IHT raises just £7 billion a year, and that only 4% of deaths in 2020/21 resulted in IHT being paid. It also said that almost half this total was paid by the 1% of estates valued at more than £2 million.
The threshold at which IHT becomes payable is currently £325,000, with the Residence Nil-Rate Band (RNRB) of £175,000 bringing the allowance for many owner-occupiers to £500,000 before the 40% IHT rate becomes applicable.
The business group also highlighted that due to a wide range of allowances and exemptions, individuals with estates worth between £3 million and £5 million pay an IHT rate of 'only about 25%', which falls to 17% for estates worth more than £10 million.
Paul Johnson, Director of the IFS, commented: 'There are dozens of tax cuts that would be some combination of more equitable and better designed to promote economic efficiency and growth.
'We are in the middle of a record-breaking increase in the tax burden on income and earnings. Effective tax rates on wealth have been falling for decades. A cut in the tax on inherited wealth looks particularly ill-timed.'