Chancellor of the Exchequer Sajid Javid has hinted that the government is poised to either scrap or make reforms to the unpopular inheritance tax regime later this year.
Speaking at a Conservative Party conference fringe event last night (October 1), organised by the Institute of Economic Affairs and the Taxpayers' Alliance, Mr Javid said although reforms have already been made to IHT, scrapping the tax altogether is something that the government may consider in the near future.
The chancellor acknowledged the unpopularity of IHT among the public with claims that it is unfair people’s income gets taxed both in life and at death.
Mr Javid said: “I shouldn't say too much now but I understand the arguments against the tax.
“I do think that when you pay taxes already through work or through investments and capital gains and other taxes there's a real issue with then asking [individuals], on that income, to pay taxes all over again.
“Sensible changes have already been made [to IHT] but it is something that is on my mind.”
Any such reforms to IHT could be made sooner rather than later as the chancellor also declared there would be a budget before the end of the year.
As Mr Javid noted, a review of inheritance tax rules is already underway in order to simplify the system.
The first report from the Office of Tax Simplification (OTS), out last November, recommended the government should move to a fully digital system for IHT.
A final report, published earlier this month (July 5), proposed a change to the ‘seven-year rule’ of taxing gifts alongside changes to the taper relief and others.
Under current IHT rules estates worth £325,000 or more are liable for a 40 per cent tax charge.
However, no tax is paid if the estate is valued at less than £325,000 or if anything above this threshold is left to a charity, spouse, civil partner, or a community amateur sports club.
There is also a residence nil-rate band, which came into effect in 2017 and is an additional threshold available where the deceased left a residence, or the sale proceeds of a residence, to their direct descendants.
The RNRB for 2019/20 is £150,000, an increase of £25,000 from 2018/19.
The amount of IHT paid has risen steadily since 2009/10 when the government froze the nil-rate band at £325,000. As the band hasn’t adjusted with inflation, more and more estates are falling into the net of IHT.
Last month (September 19), data from HM Revenue and Customs revealed the number of estates liable for IHT reached a record level in the 2016/17 tax year.
The taxman levied IHT on 28,100 estates, up 15 per cent on the year before and a record number of estates charged.
The average bill was £179,000 and the proportion of estates liable rose from 2.6 per cent in 2009 to 4.6 per cent in 2016/17.
Total funds raised from IHT receipts during 2018/19 also reached a record level, increasing 3 per cent year-on-year to £5.4bn.