Could Rishi Sunak raid inheritance tax next month?
INHERITANCE TAX bills could hit fresh highs if Chancellor Rishi Sunak increases the hated levy in his Autumn Budget. The Chancellor could launch a fresh tax raid on Middle England by hiking the punitive 40 percent tax rate or cutting IHT thresholds, a top tax expert has warned.
HM Revenue & Customs is already collecting more inheritance tax (IHT) from bereaved families than ever before, with revenues hitting a record high after breaking through the £6billion barrier for the first time. That’s £1billion more than a year ago, a rise of almost a fifth. Soon they could climb even higher.
Rishi Sunak has already increased the inheritance tax (IHT) burden once this year, in his Budget on 3 March.
He froze the nil-rate band at £325,000 until 2026, five years away. This means every year more families will get sucked into the IHT net as house and share prices rise.
Sunak also froze the main residence nil-rate threshold on family homes at £175,000, again until 2026.
Now he may come back for more when he unveils his three-year Spending Review and Autumn Budget on October 27.
AJ Bell analyst Tom Selby said inheritances may prove too juicy a target for the cash-strapped Chancellor to resist.
One option is to increase the 40 percent IHT rate that currently applies to all family assets that fall above the nil-rate thresholds.
Many already believe this tax rate is punitive, so any increase would cause an outcry.
Selby said the Chancellor may prefer to lower the nil-rate threshold instead, so that people start paying inheritance tax much sooner, say, on assets totalling £200,000 or £250,000.
Sunak has another option. “He could raise money and simplify the system by scrapping the £175,000 main residence nil-rate band on family homes,” Selby said.
This complex tax charge has come into criticism for making the IHT system even more confusing, so the Chancellor could sell this as part of HMRC’s tax simplification efforts.
“The main residence tax break looks quite generous in the context of a pandemic which has ripped a significant financial hole in the Treasury’s finances.”
Sunak will be considering all of his options, including a combination of several measures. “I don’t think you can rule anything out at the moment,” Selby added.
The Chancellor risks destroying his popularity in the process and could meet opposition from Boris Johnson.
“Boris knows any move to increase IHT will be deeply unpopular with traditional Conservative voters,” Selby added.
Mark Giddens, partner at accountancy firm UHY Hacker Young, echoed Selby’s warning that families risk forking out more of their wealth to HMRC via inheritance tax.
“IHT was original supposed to affect only the super-rich but is now increasingly hitting middle England.”
Sunak is under huge pressure. “The pandemic has led to record peacetime borrowing, and the Treasury will be looking to balance the books any way it can.”
Giddens urged families to start IHT planning now to ensure they can pass the fruits of their labour to their children.