Calls for overhaul of the Inheritance Tax regime

Posted on June 1, 2018 by

Calls for overhaul of the Inheritance Tax regime

A “lifetime receipts tax” would be fairer and harder to avoid, raising more money for the State and encouraging families to pass on their wealth to younger members.

The think tank proposal, part of a campaign led by Lord Willetts, is looking at ways to tackle intergenerational inequality.

The IHT Regime, where most married couples can leave up to £850,000 to their direct descendants tax free, is Britain’s most hated tax, even though it is only levied on about 4% of estates. The current system is widely unpopular and raises little in revenue, just 77p for every £100 of taxation.

The proposal is a suggested lifetime allowance of £125,000 for everyone for receipt of cash and/or asset gifts, with everything above that figure taxed in bands, 20% up to £500,000 and 30% thereafter.

It is thought that this would deter tax avoidance and raise an estimated £11bn a year in 2021 compared with £6bn under the present regime.

The aim is to push money to millennials earlier, those that are priced out of the housing market and will not inherit until age 61 on average, far too late to help with buying a home and raising children.

Supporters of the proposal say the lifetime receipts tax would take the strain from the old (they cannot avoid it), encourage a wider spread of wealth (the more people you leave cash to the less tax is paid) and that it is not too tough (the marginal rate is lower than the 40% existing rate).

The Chancellor Philip Hammond has called for a separate Treasury review and while some loopholes might be closed it seems unlikely to lead to significant reform, despite growing calls from left of centre politicians to use wealth taxes to create a fairer society.