Inheritance Tax (IHT) appears to be one of the most unpopular taxes in the UK and is regularly criticised by both families and policymakers alike.
However, independent think tank the Resolution Foundation has gone one step by further – by making the radical suggestion that the tax should be scrapped altogether and replaced by a tax on those who receive an inheritance.
According to the Foundation, the current IHT system is unfair and easy for the wealthiest individuals to avoid. Therefore, instead of taxing the estates of the dead, the think tank has suggested that those who receive an inheritance should be taxed instead, with each beneficiary having their own ‘tax-free allowance’. As its report says, this would allow families to “spread their wealth.”
At the moment, IHT is charged on the value of an individual’s estate after their death. Their beneficiaries must pay 40 per cent of the entire value of this estate over a certain threshold – £325,000 for an individual and £650,000 for couples.
However, according to the Resolution Foundation, currently only four per cent of estates are affected by the tax, as the wealthiest people can get away with paying less by using a number of ‘loopholes’.
These include giving assets to children more than seven years before death and tying assets up in business and agricultural land, which carry special relief rates.
What’s worse is that people only tend to be left an inheritance at an average age of 61, when they have already amassed their own money and savings, rather than during a younger stage in their life when they were perhaps more in need of extra funds.
The think tank therefore suggests that individuals should be taxed on the wealth they receive over their lifetime and that each person should be given a £125,000 tax-free allowance, followed by a 20p rate up to £500,000 and 30p after that.
This ‘Lifetime Tax Receipts Tax’ would mean that there would be no advantage of passing on wealth long before death or after it, and it would make more people pay – yet each person would be paying considerably less, it says. Resolution estimates that this would raise £11 billion in 2020/21, compared with the projected £6 billion under the existing system.
For more information about MD Consulting’s Inheritance Tax planning services and how we can help, please contact us.