Prime Minister Andy Burnham is facing warnings against reviving a controversial proposal for a 10% levy on all inheritances, a move critics have dubbed a 'death tax,' intended to fund the nation's social care system. The Prime Minister has expressed a desire for cross-party agreement to address what he describes as a 'broken' care system, acknowledging that successive governments have failed to resolve the issue.
Robert Jenrick, Reform UK's Treasury spokesman, stated that such a levy would significantly increase the number of families liable for inheritance tax, potentially twentyfold. He argued that this universal charge would affect all inheritances, regardless of value, and called it a "pensioner's worst nightmare." Jenrick also suggested that if the Prime Minister wished to implement such a significant policy shift, a general election should be called, as the idea was not part of the party's manifesto.
Burnham has indicated his intent to pursue "major changes" to social care before the next general election, which must be held by August 2029. He has previously stated that the National Health Service could "collapse" if social care is not adequately addressed. A review led by Baroness Casey is expected to be accelerated to facilitate reforms before the end of the decade.
Kemi Badenoch has expressed willingness to collaborate with Burnham and other parties on social care reform. However, she cautioned that any solution must not penalize individuals who have saved for their own later life care and stressed that funding should come from spending cuts, not new taxes or increased borrowing that would burden future generations.
Burnham's proposed levy, previously suggested when he served as Health Secretary in the Labour government, would have replaced inheritance tax. At the time, it was criticized as a 'death tax.' He has since defended the idea, suggesting it is not about increasing the overall burden but about a fairer method of contribution, providing peace of mind for people during their lives by ensuring they receive needed care.
Under current UK inheritance tax rules, estates below £325,000, or £500,000 when a family home is passed to children or grandchildren, are exempt. Couples can combine allowances, potentially passing on up to £1 million tax-free. Inheritance tax is charged at 40% on assets above these thresholds, though legal avoidance methods are common. Reform UK estimates that Burnham's proposed 10% levy could raise approximately £20.5 billion by 2028, but this figure would decrease if inheritance tax were simultaneously abolished.
Some analyses suggest that abolishing inheritance tax while implementing the new levy could benefit wealthier individuals while increasing the tax burden on working people, a politically challenging proposition. An alternative proposal, suggested by Liverpool City Region Mayor Steve Rotheram, involves a wealth tax as a potential funding mechanism for social care.