The latest vow to slash Inheritance Tax
In an interview with The Sunday Times – and in a clear attempt to court pensioners and home owners – Chancellor George Osborne has pledged to slash inheritance tax (IHT).
He vowed that before the general election in May he would set out plans to ensure that IHT, sometimes dubbed the ‘death tax’, is only “paid by the rich.”
Specifically, he said: “I have taken steps to help with inheritance, making sure that people can pass on their pension to their children…David Cameron has made it clear, as have I, that we believe inheritance tax is a tax that should be paid by the rich and we will set out our further approach closer to the election.”
As Mr Osborne implies, IHT was originally intended to only be paid by the super-rich. However, due to the current threshold – at the moment your estate will owe tax at 40 per cent on anything above the £325,000 threshold for individuals and £650,000 for couples – hundreds of thousands of people have been pulled into the IHT net due, largely, to the rise in house prices.
I for one would certainly support this move as IHT is, arguably, the most despised of all taxes – not only because it is, evidently now being paid by the already ‘squeezed middle’ but also because it is, in effect, a double form of taxation.
As I said when this idea was mooted early last year by the Conservatives: “It’s our experience that most people resent the idea of giving 40 per cent, over and above the threshold, of all they have acquired to the taxman after they die. After all, they’ve paid taxes on their income, savings, investments and pensions all their lives. Not unreasonably, they want their assets to go to their heirs, not the government.”
Whilst I agree with the move to slash IHT – ideally it should be scrapped completely in my view– I am not convinced it will happen. Why? Because for the Conservatives to achieve this aim, they would need to win a majority at the election in four month’s time.
Reading the interview, it felt a bit like groundhog day; like ‘a little bit of history repeating’. The Tories also promised in their 2010 manifesto to raise the IHT threshold to £1m – but they couldn’t pull it off as they had to form a coalition government due to not winning enough seats.
And it could happen all over again. Most experts believe this next election in May will be the tightest since 1945, with most projections predicting a hung parliament.
As such, I forecast that reducing inheritance tax will be hard to come to pass – and slashing IHT liabilities will, therefore, remain a major financial priority for the vast majority of our clients well into the next decade.