There has been much speculation that inheritance tax may be abolished or more likely reduced from 40% to 20% in the Chancellor’s Autumn Statement on Wednesday 22nd November 2023.
Do not be fooled by this rumour.
The inheritance tax nil rate band of £325,000 has been the same since 6 April 2008. This has been frozen for 14 years and with allowance now frozen until 2028, more and more people have been and will continue to be caught by a tax that most people hate. Taxing you on death has never been popular since its introduction in 1694 when it was launched in England as a Probate Tax to fund the “Nine Years War” which started in 1688 between the Grand Alliance (including England) against French expansionism.
HMRC inheritance tax revenues have increased from £2.34bn in 2009 to £6.77bn in 2022 (0.35% of GDP) and forecast to be £7.2bn in 2023/24, over £8bn in 2024/25 and bit £15bn by 2032 (0.5% of GDP).
As a proportion of overall GDP, inheritance tax has become an even greater burden on taxpayers and is much hated. You work hard and save hard all your life to be penalised on death.
By cutting inheritance tax e.g., to 20% from 40%, it is merely returning the IHT take to a similar % of GDP as it has usually been. Any cut will simply be a vote sweetener by the Conservative government with a general election looming next year.
Indeed, perhaps a cut or abolition is a political bomb being left for any new Labour government who then may be forced to increase IHT rates or even replace it with an annual wealth tax which they are currently against.
Care Fees Trap
We suspect that inheritance tax reductions now like the introduction of passing on any unused nil rate band of a deceased spouse to their surviving spouse by Labour and the introduction of residence nil rate band by the Conservatives, was less about vote chasing and more about encouraging people to believe there is no longer a need to plan for inheritance taxes. By not planning, spouses leave their wealth to their surviving spouse meaning the surviving spouse has more wealth available to pay for later life means tested care fees, saving the government and local authorities £billions in care costs.