Is IHT reform now on the cards? – Legal Comment

by | Oct 17, 2022

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Tax

With Liz Truss’s home borough of Greenwich barely making the top 100* of local authorities’ contributions to Government coffers for inheritance tax, IHT may not be high on her neighbours’ agendas but according to James Ward, Head of Private Client at Kingsley Napley LLP, residents in other boroughs would be foolish to wish for the abolition of IHT any time soon.

During her leadership bid in the summer, Liz Truss promised a review of inheritance tax if she became Prime Minister. One of the major donors to Liz Truss’ campaign, Treasury Minister Andrew Spencer, even called for the complete scrapping of the tax earlier this month. However, given property prices are falling and new Chancellor Jeremy Hunt has warned some taxes may need to go up, there is now a chance IHT reform may be in his sights to achieve the same tax take or increase it in future.

Currently, the inheritance tax threshold is £325,000, meaning people inheriting estates over this amount are required to pay tax at 40%. For the financial year 2021-22 IHT receipts totalled £6.1bn.

“Decades of house price growth across the UK have taken more and more estates into the threshold for IHT, with London and the South East paying 47% of IHT receipts according to the latest available figures*. But any proposal to eliminate IHT at this point in the economic cycle would surely be as unpopular and unwise as the 45p income tax fiasco,” James Ward says.

“Whether the new Chancellor decides to tamper with the current regime or not, those whose estates will be liable for IHT should double down on their planning,” James adds.

An analysis* by Kingsley Napley of the latest available HMRC statistics (for tax year 2019-20 – see source) shows a breakdown of inheritance tax (IHT) receipts by area. Highlights include:

  • Kensington and Chelsea tops the league for average value of IHT paid once again (see table 1 below) and Barnet once more leads by volume of estates hit by IHT (see table 2);
  • 8 of the 10 highest paying localities for IHT are in London and the South East with Newcastle and Suffolk being the only exceptions (table 1);
  • The average IHT bill in Runnymede was double that of Aberdeenshire; the average in Merton double that of Cardiff and the Hounslow average was double that of Derby (see figures here).
  • The total IHT take for the tax year 2019-20 was £5.2bn. For the financial year 2021-22 the total was £6.1bn.

James Ward comments further: “At least with IHT it’s a case of better the devil you know. Many of the clients I speak to take the view that abolishing it entirely would only enhance the prospect of a wealth tax under an incoming Labour Government.  IHT remains a tax where planning is possible to mitigate liabilities due.”

Kingsley Napley sees a steady stream of enquiries from those who want to take legitimate steps to reduce their inheritance tax liabilities. Such steps might include:

  • Capital gifting: Sizeable transfers seven years before death;
  • Income gifting: Regular contributions to grandchildren’s school fees or an offspring’s mortgage for example;
  • Exemptions: Using all nil rate bands. Business relief in particular can lead to big savings;
  • Life insurance: Arranging for this to be paid out to family members (so letting the insurance pay the tax);
  • Skiing: Spending the Kids Inheritance.

James Ward adds: “Those living in IHT hotspots should strongly consider all of these steps and more to avoid ranking at the top of our Inheritance Tax Premier League in future. It is always wise to have a regular review of estates and inheritance plans to ensure tax-efficiency in the event of death but especially now given the current political and economic environment.”

*The Kingsley Napley Inheritance Tax Premier League analysis can be found in full here with top twenty figures as follows:

  1. Rank by Value of IHT Estates – 2019/20 tax year (with 2018/19 table for comparison)
2019/20

Rank

Area Number Amount £m Average

£k

1

Kensington and Chelsea

142

155

1,092

2

Westminster

141

97

688

3

Camden

        163

98

601

4

Islington

88

35

398

5

Hammersmith & Fulham

120

47

392

6

Chichester

141

49

348

7

Barnet

302

104

344

8

Basingstoke & Dean

72

23

319

9

Newcastle upon Tyne

54

17

315

10

Suffolk Coastal

83

26

313

11

Three Rivers

79

24

304

12

South Oxfordshire

121

35

289

13

Wandsworth

180

51

283

14

Babergh

53

15

283

15

Oxford

86

24

279

16

Windsor & Maidenhead

151

42

278

17

Cotswold

69

19

275

18

Epsom & Ewell

62

17

274

19

Haringey

133

36

271

20

Elmbridge

174

46

264

2018/19

Rank

Area Number Amount £m Average

£k

1

Kensington and Chelsea

144

154

1,069.4

2

Westminster

159

130

817.6

3

Camden

145

64

441.4

4

Stratford-on-Avon

79

34

430.4

5

South Oxfordshire

106

39

367.9

6

Babergh

44

16

363.6

7

Winchester

104

37

355.8

8

West Devon

35

12

342.9

9

Hammersmith and Fulham

104

35

336.5

10

Test Valley

52

17

326.9

11

Hertsmere

100

32

320.0

12

Waverley

139

44

316.5

13

Chichester

109

33

302.8

14

Kingston upon Thames

159

47

295.6

15

West Dorset

95

28

294.7

16

Barnet

316

92

291.1

17

Wandsworth

176

51

289.8

18

South Bucks

107

31

289.7

19

Islington

80

23

287.5

20

Merton

150

41

273.3

 

  1. Rank by Number of IHT Estates – 2019/20 tax year (with 2018/19 table for comparison)
2019/20

Rank

Area Number Amount £m Average £k

1

Barnet

302

104

344

2

Bromley

271

52

192

3

City of Edinburgh

228

44

193

4

Wiltshire

210

46

219

5

Cornwall

193

27

140

6

Croydon

183

26

142

7

Wandsworth

180

51

283

8

Cheshire East

179

31

173

9

Brighton & Hove

176

32

182

10

Elmbridge

174

46

264

11

Ealing

173

37

214

12

Camden

163

98

601

13

Leeds

156

26

167

14

Birmingham

156

23

147

15

Hillingdon

152

22

145

16

Windsor & Maidenhead

151

42

278

17

Redbridge

150

24

160

18

Harrow

146

32

219

19

Waverley

143

35

245

20

Kensington and Chelsea

142

155

1092

2018/19

Rank

Area Number Amount £m Average £k

1

Barnet

316

92

291.1

2

Wiltshire

261

60

229.9

3

City of Edinburgh

254

54

212.6

4

Bromley

249

52

208.8

5

Cornwall

245

49

200.0

6

Elmbridge

197

49

248.7

7

Richmond upon Thames

191

47

246.1

8

Wandsworth

176

51

289.8

9

Ealing

173

32

185.0

10

Croydon

169

29

171.6

11

Cheshire East

165

30

181.8

12

Westminster

159

130

817.6

13

Kingston upon Thames

159

47

295.6

14

Bristol, City of

159

25

157.2

15

Enfield

159

24

150.9

16

Merton

150

41

273.3

17

Brighton and Hove

149

27

181.2

18

Birmingham

148

31

209.5

19

Camden

145

64

441.4

20

Kensington and Chelsea

144

154

1,069.4

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