Inheritance Tax Receipts Projected to Double, Public Backs Proposed Cuts

Inheritance tax receipts are projected to nearly double in the next five years, reaching an estimated £15 billion by 2031, according to a new report by the think tank Onward. This increase is expected unless reforms are implemented, as current tax revenue stood at £7 billion last year.

Concurrent polling by YouGov reveals substantial public support for proposed plans to cut inheritance tax, particularly the exemption of the family home from the tax, regardless of its value. The survey of over 6,000 adults indicated that 61 percent of respondents favor this policy, with only 18 percent opposed. Support was strong across different political affiliations, including significant backing from Conservative, Reform, Liberal Democrat, Labour, and Green party supporters.

Proposed Conservative Reforms

Kemi Badenoch, a key figure in the Conservative Party, recently announced proposals to reform inheritance tax. These reforms include exempting the family home from the tax and allowing couples to pass on an additional £1 million in assets tax-free. Badenoch emphasized the human desire to pass on family property, stating it should not be subject to taxation.

Conservative shadow chancellor Andrew Griffith echoed these sentiments, characterizing inheritance tax as a burden on middle-income families rather than just the wealthy. He stated that under Conservative plans, there would be no stamp duty on home purchases, no "Mansion Tax," and no inheritance tax for families. He also highlighted that these changes would remove more than half of those currently liable for inheritance tax from paying it altogether.

The proposed Conservative reforms are estimated to cost £6 billion annually, with funding primarily sourced from welfare cuts. However, some economists have raised concerns that the policy could incentivize older individuals to invest more heavily in property, potentially increasing the actual cost of the reforms. Projections from Dan Neidle of Tax Policy Associates suggest the final cost could range between £7.7 billion and £10.9 billion.

Rising Tax Impact

The Onward report details a sharp rise in the impact of inheritance tax, with receipts reaching a record £7 billion. This rise is partly attributed to a prolonged freeze in the tax threshold, which the Labour party has extended until at least 2031. Further increases are anticipated due to other Labour-initiated changes, such as the inclusion of certain farmland and pension pots in taxable assets starting next year.

By 2030, inheritance tax receipts are forecast to reach £12.6 billion, affecting an estimated 52,000 estates, which is three times the proportion affected in 2009. The following year, revenues are expected to hit £15 billion, doubling the current level.

Under current regulations, individuals can pass on £325,000 in assets tax-free, with an additional £175,000 if the family home is included, allowing couples to transfer a total of £1 million without tax implications. The Conservative proposals aim to exempt the family home entirely and increase the tax-free asset threshold for individuals to £500,000, enabling couples to leave £1 million in assets on top of their home value, tax-free.