Calls from senior Tories to scrap inheritance tax (IHT) have been met with scepticism from economists and opposition MPs who accused them of “pushing ideas to benefit the wealthy”.
The debate about the controversial levy was re-ignited after former chancellor Nadhim Zahawi wrote an article in The Telegraph, calling it “morally wrong” and a “spectre that haunts us alongside death”.
Mr Zahawi, the multi-millionaire former businessman who was sacked from the cabinet amid controversy over his own tax affairs, said abolishing the measure ahead of the next general election would show the government “backs families in their desire to pass on their hard-earned savings to the next generation”.
But other Tories and opposition MPs said it should not be the government’s priority in a cost of living crisis, while experts said it would be fairer to overhaul IHT rather than get rid of it.
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Paul Johnson, head of the independent economic think tank, the Institute for Fiscal Studies (IFS), tweeted: “Rather than scrapping IHT we urgently need to reform it.
“It is genuinely unfair.
“The very wealthy pay an average rate half, or less, (than) that paid by the moderately wealthy. If all you leave is the family house it’s hard to avoid. If you have millions it is absurdly easy to avoid.”
Currently, inheritance tax is levied at 40% on the value of someone’s estate above a £325,000 threshold.
This can rise to £500,000 if you leave your home to your children or grandchildren and your estate is worth less than £2 million.
And surviving spouses who inherit their partner’s assets can pass on up to £1m without an inheritance tax liability.
Inheritance tax ‘raises £7bn for public services’
The Treasury defended the tax, saying it raises more than £7bn a year to help fund public services like the NHS and schools.
Dan Neidle, the founder of the Tax Policy Associates think tank, said that abolishing it would mean losing that revenue “to benefit the wealthiest 4%”.
He said that the 40% rate “is one of the highest in the world” but a better solution to scrapping it would be to limit the exemptions and reduce the rate.
“Make it a fair tax, applying at a fair rate to the upper-middle class, and at that same rate to the very wealthy,” he tweeted.
The New Economics Foundation think tank said that the tax “applies to a small number of wealthy people” and most “would see no benefit from scrapping it”.
It added: “To give our children the best chance in future we need this government to focus on fixing our crumbling schools and hospitals – not giving a tax break to the wealthy.”
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Inheritance tax has long been a divisive subject in the UK.
Those in favour of it say inherited wealth is a barrier to social mobility, but critics argue it is essentially a double-tax – as it is charged on assets accumulated in a life of paying income tax.
There is also concern that rising house prices has dragged ordinary families into the threshold, which has remained at £325,000 since 2009.
Last year Chancellor Jeremy Hunt extended the freeze on this threshold to 2028 – a move experts said would result in thousands more families paying the levy.
It was one of a number of stealth taxes announced in his Autumn Budget to help plug the UK’s fiscal black hole.
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Many Tories have been urging the government to cut taxes to spark economic growth and turn around the party’s fortunes in the polls – but they are split on the issue of inheritance tax.
The Telegraph said Mr Zahawi is one of 55 MPs from the Conservative Growth Group, formed of Liz Truss allies, who want to see an end to IHT, including former cabinet ministers Priti Patel and Jacob Rees-Mogg.
However, Tory MP Simon Clarke, a former chief secretary to the Treasury who previously associated with the group, said he would prefer to see the IHT threshold raised as it currently “catches so many families who aren’t ‘rich’ in any meaningful sense”.
He added he “would far rather see action on income tax/fiscal drag when trading options”.
Campaign group Next Gen Tories also said it would be “fairer to cut income taxes over asset taxes”.
‘Tories pushing ideas to benefit wealthy’
Labour also ridiculed the proposals, with a spokesperson telling Sky News: “The Tories crashed our economy with their reckless mini-budget, sending mortgage costs soaring and working people continue to pay the price for the government’s catastrophic economic failures.
“If the current Tory leadership want to take tax advice from Nadhim Zahawi, and economics lessons from Liz Truss, then more fool them.”
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And the Lib Dems said if the Tories “really cared about helping families, they wouldn’t have hit them with a stealth tax in the middle of a cost of living crisis”.
Treasury spokesperson Sarah Olney said: “As usual, Conservative MPs are pushing ideas that would mostly benefit a tiny number of the very wealthiest whilst leaving the squeezed middle and our public services short-changed.”
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A Treasury spokesperson said: “More than 93% of estates aren’t expected to pay any inheritance tax in the coming years – however the tax still raises more than £7bn a year to help fund public services like the NHS and schools.
“Estates of surviving spouses and civil partners can pass on up to £1m without an inheritance tax liability – significantly more than the average UK home of £285,000.”
