Inheritance tax – The ‘unfairest’ of them all

New research from Canada Life reveals that inheritance tax (IHT) tops the rankings amongst Brits as the UK’s most unfair tax. 

When asked to rank the perceived fairness of the UK’s most common taxes, Britons placed inheritance tax firmly at the top of the ‘unfair’ list. More than half (54%) consider IHT an unfair levy, followed by stamp duty (43%) and council tax coming in close third (40%).  

The findings may point to concern amongst an increasing number of middle-income families who are being pulled into the IHT net as a result of frozen thresholds, rising property prices, and forthcoming rule changes. HMRC collected a record £8.2bn in IHT receipts for the 2024/25 financial year, with The Office for Budget Responsibility forecasting IHT to raise £9.1bn for the 2025/26 financial year. 

Amongst those who deem IHT unfair, the top three reasons cited were that it penalises people who have saved well and want to pass something on to loved ones (65%), a preference for assets to be given to loved ones instead of the government (59%) and 57% felt it was double taxation.  

For those who believe IHT to be a fair tax, the top reason was because it supports public services (53%). 

Demographically, the younger generation are more supportive of inheritance tax.  Two in five (42%) Gen Z’s think IHT is unfair, compared to three in five (61%) Boomers. 

When asked about views on income tax, perceptions of fairness were strongly linked to earnings. Whilst more than a third (37%) feel it’s unfair to pay income tax on annual earnings less than £50,000, far fewer take issue with higher earners being taxed more. Just 20% say it is unfair on earnings between £50,000 – £125,000, and just 17% for those earning £125,000+. 

Whilst Brits are more protective when it comes to passing wealth to the next generation, they are seemingly more open to being taxed on current earnings. Just 20% view National Insurance contributions as an unfair tax.  

John Chew, Technical Specialist, Tax and Estate Planning, Canada Life, said:  

“It’s clear from the research that inheritance tax is not an issue confined to the wealthy few. With thresholds frozen since 2009, strong property growth, plus pensions coming into scope for IHT from 2027, more and more families will be finding themselves caught in the IHT net. This has helped HMRC collect a record £4.4bn from inheritance tax in the last six months, a figure forecast to increase in the years ahead. 

“Despite inheritance tax topping the rankings as the UK’s most unfair levy, our research found fewer than a quarter of over 55s (23%) had given thought to an estate planning or inheritance tax strategy. Further reform expected in this month’s Budget may prompt more to consider their options when it comes to managing their wealth – whether through gifting or setting up a trust. 

“Conversations with loved ones about inheritance can be challenging, but they are essential. Professional financial advice can provide invaluable guidance when it comes to inheritance and estate planning – offering tailored support in what can be a complex area.”