Inheritance tax proposals would make UK ‘dangerous place' for wealthy
Government officials are said to be examining proposals that would tighten the rules on the gifting of money and assets in an attempt to close the black hole in government finances at the autumn budget.
The move has been attacked by the Conservative leader, Kemi Badenoch, who claimed Rachel Reeves, the chancellor, wanted to tax 'what you leave your children … all to pay for [her] failures'.
• How an inheritance tax raid could work — and what you can do about it
Richard Tice, Nigel Farage's deputy, promised Reform UK would abolish a tax that caused 'unnecessary pain to grieving families' and 'disincentivises hard work, ambition and risk-taking'.
Dan Neidle, the founder of Tax Policy Associates, said while a raid on inheritance tax might be a good idea in theory, Reeves was highly unlikely to adopt it amid concerns that it would further discourage wealthy people from living in the UK.
'The changes to inheritance tax rules and non-dom status at the last budget have already sent quite a damaging message to wealthy people and there is a big risk that Labour suffers a death by a thousand cuts on the rich who have the ability to leave the UK,' he said.
'You would be saying to non-doms that not only do you have to pay inheritance tax — as announced in Reeves's last budget — but you can't even gift your way out of it. It would make the UK a very dangerous place for a wealthy person to be'.
Neidle added that the move would also not necessarily help Reeves balance the books as it would be almost impossible for the Office for Budget Responsibility to accurately assess how much such a new tax might raise.
'No one knows how much people are gifting currently so there is no way that you could calculate how much the tax might theoretically raise,' he said.
'And if there is one thing the Treasury hates, it is not knowing the impact of tax changes.'
David Sturrock, of the Institute for Fiscal Studies, said that Reeves was unlikely to be able to raise significant sums from inheritance tax without hitting small gifts made by middle earners.
The Treasury is looking at the possibility of tightening rules that taper away inheritance tax liabilities on gifts made within seven years before a death, but Sturrock said there 'isn't a large amount of revenues coming in from gifts within that period. I don't think that is going to be a big revenue raiser'.
A lifetime cap on tax-free gifts is also said to be under consideration. Sturrock said this would also have to be set very low to bring in large amounts, pointing to evidence that 90 per cent of the £14 billion in gifts made each year were below £20,000.
'It's going to have to be a number in the small thousands if you want to start bringing in substantial amounts of revenue,' he said.
'In a large majority of cases these gifts are being used to buy houses, it's help with a deposit. Those are more often received by those with wealthier parents, but it is still some 'ordinary' people too. [A cap] might be a way of preventing lifetime gifting to avoid some elements of inheritance tax, but it doesn't seem like it's going to raise game-changing sums unless you drastically expand the scope of gifts that are going to be taxed.'
Badenoch said that Labour 'want your savings, your pension, your home and now what you leave your children', arguing for cutting spending rather than raising taxes.
Tice confirmed his party was still committed to abolishing inheritance tax completely, a move which would cost an estimated £14 billion by the end of the parliament. 'Inheritance tax does little more than add extra unnecessary pain to grieving families. It disincentivises hard work, ambition and risk-taking, so it's no wonder this Labour government are such big fans of it,' he said.
'Reform UK would abolish this death tax, ensuring people are rewarded for their hard work and putting more money into the pockets of families.'
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