‘Cruel’ levy will see an extra 50,000 grieving families dragged into paying inheritance tax – prompting calls from senior Tories for duty to be ‘abolished’
- Government froze threshold at which levy applies at £325,000 until April 2028
An extra 50,000 grieving families will be dragged into paying an inheritance tax, which is prompting calls from senior Tories for the duty to be ‘abolished’.
The Government has frozen the threshold at which the ‘cruel’ levy applies at £325,000 for an allowance until April 2028, which will remain at the level set in 2021, the Telegraph reports.
While previous official estimates said that 13,400 extra estates would be affected by the duty over this seven-year period, internal HMRC forecasts reveal this number is now set at 49,400, with inflation being blamed by the increase.
The news prompted calls from senior Tories for the duty to be abolished. Nadhim Zahawi, a former chancellor, said ‘many more tens of thousands of families will be dragged into this cruel tax at the very moment they will also be suffering personal grief’.
BraMr Zahawi added that many of the affected families will be even less able to seek out professionals for advice about the complications the tax brings.
The Government has frozen the treshold at which the ‘cruel’ levy applies at £325,000 until April 2028, which will remain at the level set in 2021, the Telegraph reports
‘However, abolishing inheritance tax now would enable the Government to back more families in their natural desire to pass on their hard-earned savings to their children,’ he told the Telegraph.
Former business secretary Jacob Rees-Mogg told the publication: ‘This most iniquitous tax ought to be abolished as it raises little and distorts the allocation of capital, making us all poorer by lowering economic growth.’
Overall, more than 280,000 households could face higher inheritance tax bills by the end of 2028 because of the seven-year long freeze.
Currently, £500,000 – £325,000 of a basic allowance plus an extra of £175,000 for property – can be handed down tax free.
While couples can hand down up to £1million without triggering inheritance tax by transferring their allowance to the other when one of them dies, anything above this threshold triggers a 40 per cent tax.
The tax usually has to be paid before probate is granted, which means those who inherit can sometimes struggle to come up with the money.
While thresholds should go up with inflation every year, chancellors have frozen them at the 2021 level to raise cash, which means that rising house prices, growth of value of assets and savings fuelled by higher wages and inflation drag more estates over this threshold.
Downing Street has been holding internal talks about abolishing the duty in order to appeal to voters at the next election.
However experts said those affected by the tax could reduce the bill for their children by setting up lifetime and charitable trusts.
Downing Street has been holding internal talks about abolishing the duty in order to appeal to voters at the next election
HMRC forecasts, obtained by a Freedom of Information request by the Telegraph, show those decisions will impact an estimated 283,400 estates over the seven-year period, of which 49,400 will be additional households that would not have to pay inheritance tax if the thresholds had gone up in line with inflation.
In its response to the FOI, the HMRC told the Telegraph: ‘You will note that the numbers have increased since the last time this information was published.
‘This is because of the large upward revision to both the actual and forecast CPI inflation series, which is used to index the inheritance tax thresholds in the years where they are not maintained at their current levels.’
The number of estates set to pay inheritance tax during the 2021-28 freeze will be 63 per cent higher than the 173,340 subject to the duty in the preceding seven years.
Forecasts from last November predicted that inheritance tax receipts would rise from £7.1billion in 2022 to £8.4billion by 2028, but this is likely going to be much higher now.
A Treasury spokesman told the Telegraph: ‘The vast majority of estates do not pay inheritance tax – more than 93 per cent of estates are forecast to have zero inheritance tax liability in the coming years. However, the tax raises more than £7 billion a year to help fund public services millions of us rely on daily.’
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