Kingsley Napley’s James Ward discusses rumours of Govt plans for big shakeup to IHT

Written by James Ward, Head of Private Client at law firm Kingsley Napley LLP

The big question for wealth advisers today is how seriously we should take the headlines from this weekend about Inheritance Tax (IHT). 

The Telegraph has been running a campaign for several months now about the abolition of IHT suggesting the idea has strong support from its readership but this seemed wishful thinking at best given backing in only certain quarters of the Tory party,  Yesterday, however, The Sunday Times reported that there is a live discussion at the highest level of government about including reform of inheritance tax in their next manifesto. 

It said “One proposal being considered is for Sunak to announce his intention to phase out the levy by reducing the 40 per cent inheritance tax rate in the budget in March, while setting out a pathway to abolish it completely in future years.”  It was clear this isnt on the cards for November’s budget but is seen as a potential option to widen the gap between the Conservative and Labour policies in the lead up to the next election.

To date I have always been sceptical the Conservatives would plump for an outright abolition of IHT on the basis that it would mean cutting a tax that affects a small percentage of the population and open them to criticism they favoured the rich over the masses.

However there seems to be something in the story now and I would not be surprised if Inheritance Tax does become a battle ground in next year’s election.

So where does this leave advice to clients?

Should they sit and do nothing now, to wait and see the result of the election or should they be proactive in their succession planning, one part of which is Inheritance Tax planning?

I recommend carrying on with well considered plans as long as they are not triggering upfront taxation. Most succession plans see Inheritance Tax mitigation as one small piece of the jigsaw, with control over assets being the most important.

It is too early to tell if IHT reform will make it into Sunak’s election manifesto and even if it does, a Tory victory is, of course, not a foregone conclusion. Rachel Reeve may have recently ruled out a Wealth Tax, including a Mansion Tax, if Labour succeeds in getting to power but I have long maintained that IHT is effectively our wealth tax so it will be interesting to see if she comes to rely on IHT as a lever in her armoury instead.