Prime Minister Rishi Sunak is said to be mulling over a significant cut in inheritance tax as part of a broader strategy to win voters and set the Conservatives apart from Labour, who currently lead in the polls, according to a report from the Sunday Times.
Inheritance tax is currently levied at a rate of 40% on estates valued over £325,000, with an additional allowance of £175,000 available for a main residence if bequeathed to children or grandchildren.
When combined, a married couple can pass on up to £1m tax-free to their heirs.
The Sunday Times cited three anonymous sources who confirmed that there is a “live discussion” at the highest echelons of the Government regarding reforms to the tax.
Among the options being explored is a reduction of the 40% rate in the upcoming Budget set for March. This would serve as a stepping stone towards the tax’s future abolition, according to the publication.
A senior Government told the Sunday Times: “No 10 political advisers have been looking at abolishing inheritance tax as something that might go in the manifesto. It’s not something we can afford to do yet.”
This cautionary note comes in the context of recent data, which showed that only 3.73% of UK deaths during the tax year 2020-21 led to an inheritance tax charge.
HMRC collected £7.1bn in inheritance tax (IHT) from April 2022 to February 2023, a £1bn increase compared to the same period the previous year.
By region, London and the South East of England have the highest numbers of estates passing on death which resulted in an IHT charge.
These regions each accounted for £1.3bn of the total tax liability created for the tax year 2020 to 2021 respectively.
This represented 55% of the IHT liability for England, and 45% of the IHT liability across the whole UK. The average tax bill in London was £279,200.
