Calls for Change: Public Opinion on Inheritance Tax
Recent polling has unveiled widespread discontent with the current inheritance tax (IHT) system in the UK. Exclusive research conducted by Freshwater Strategy for City AM reveals that 54% of voters believe the tax should be lowered, highlighting growing dissatisfaction with its impact on individuals and the broader economy. The tax, levied at a flat rate of 40% on estates exceeding £325,000, is projected by the Office for Budget Responsibility (OBR) to raise £7.5 billion in the 2024/25 fiscal year.
The survey found that 24% of respondents favour a moderate reduction in IHT, while 30% advocate for a substantial cut. In stark contrast, only 9% think the tax should be increased. Critics frequently denounce the levy as a “death tax,” arguing that it unfairly penalises wealth built over a lifetime, often through double taxation. They also highlight loopholes in the system that result in significant disparities; research from the Centre for Analysis of Taxation shows that some estates worth over £10 million pay an average IHT rate of just 9%, with a portion paying as little as 4%.
Key Concerns Raised by Recent Changes
Recent government reforms have intensified the debate surrounding IHT. These changes include capping agricultural relief, incorporating pension pots into taxable estates, and reducing Business Property Relief (BPR) for family businesses. The cumulative effect is a projected £40 billion increase in the tax burden, including hikes in employers’ national insurance contributions. Businesses and individuals alike are now grappling with the implications.
- Impact on Family Businesses: The reduction of BPR from 100% to 50% on assets exceeding £1 million threatens the sustainability of family enterprises. Industry leaders warn this could force the sale of long-held businesses, as heirs struggle to meet tax obligations without selling core assets. Examples such as Walker’s and Tunnock’s underscore the real-world risks of these changes, which could disrupt continuity in sectors critical to regional economies.
- Retirement Planning Under Scrutiny: The inclusion of pension pots in IHT calculations, effective from 2027, represents a major shift. Once considered a safe and tax-efficient vehicle for transferring wealth, pensions will now be subject to potential tax liabilities, compelling many to rethink their financial strategies.
Broader Economic Implications
Beyond individual estates, these IHT reforms may stifle economic growth. Businesses, already burdened by rising operational costs, are likely to respond by raising prices and cutting jobs. The UK economy, which contracted in both September and October, could face further headwinds as disposable incomes shrink and investment slows. Freshwater’s survey also reveals that 75% of respondents are concerned about the economic impact of higher taxes, a sentiment that resonates amid inflationary pressures and the ongoing cost-of-living crisis.
As these changes unfold, the broader debate over the fairness and utility of inheritance tax is set to intensify. While the government seeks to meet its fiscal targets, stakeholders continue to question whether the current approach effectively balances revenue generation with long-term economic health.
(Source: City AM)