Inheritance tax has become an increasingly complex and inefficient policy. The UK now imposes one of the highest effective inheritance tax rates of any country in the developed world, yet the burden is set to grow – the number of people having to pay inheritance tax will almost double over the next five years to reach 64,100 and 11.6% of all deaths in 2019/20.
In a new report How to Cut Inheritance Tax, published by the Centre for Policy Studies on Wednesday 17 June, Head of Economic Research Adam Memon urges the Government to make inheritance tax fairer by simplifying the system with a broader base and lower rate, and eliminating many of the existing inefficient tax reliefs.
- The report proposes that the rate of Inheritance Tax should be to cut from 40% to 20%.
- This reform could be funded by ending two tax reliefs that have become increasingly inefficient: Agricultural Property Relief and Business Property Relief. If implemented with the planned reduction in pension tax relief for higher earners, the effect would be cost neutral (on a static basis) to the Exchequer.
- The Government should also task the Office of Tax Simplification to review all remaining inheritance tax reliefs, with the aim of abolishing all those reliefs which merely add complexity and avoidance opportunities.
Adam Memon explains:
“Inheritance Tax is a complicated, unfair and at times arbitrary tax. It strikes at the basic human instinct to pass on our possessions to our loved ones and especially our children and close family members. Money which has already been taxed before as income and savings through income tax, dividend tax and capital gains tax, is subject to yet another round of tax.
The Government should now take the opportunity to implement a radical simplification of the tax which broadens the base and lowers the rate. Eliminating many of the existing inefficient tax reliefs would fund a substantial cut in the inheritance tax rate from 40% to 20%.”
Tim Knox, CPS Director, comments:
“Inheritance tax is not only wrong in principal, it is ultimately damaging to the economy and deeply unpopular. A YouGov poll conducted at the time of the March 2015 Budget found that supporters of all four main parties considered it the most unfair tax out of the 11 major taxes listed. Over the weekend this unpopularity was reconfirmed in Switzerland where voters overwhelmingly rejected the introduction of a federal inheritance tax. The UK Government should do more to limit the burden imposed by inheritance tax – broadening the base and lowering the rate to 20% would be a good start.”
