Half want IHT scrapped or reduced but Hunt plans to use the levy to raise Treasury funds

According to research by Handelsbanken Wealth & Asset Management, more than half of adults in the UK want to reduce or eliminate the Inheritance Tax (IHT).

But according to reports, the tax, which brought in a record £6.1bn to HMRC in fiscal year 2021/22, will now be part of Chancellor Jeremy Hunt’s plans to reduce the UK’s budget deficit.

In his fall statement on November 17, the chancellor is expected to announce a freeze on the threshold below which people do not pay IHT.

Currently, if the deceased’s estate, including assets such as money, property or shares, is less than £325,000, no IHT is due.

The threshold was supposed to be raised in 2025-26, but this is now reportedly being pushed back to 2027-2028. The move will bring in an additional half a billion pounds for the Treasury, according to the Financial Times.

Under current rules, people who bequeath their property to direct descendants are entitled to an additional £175,000 below zero, allowing the estate to pass £500,000 tax-free.

In addition, if the allowance is not used, a surviving spouse or registered partner can exempt assets worth £1 million from IHT, which will be charged 40 percent.

Last year’s IHT receipts were 14 percent higher than the year before.

Handelsbanken’s research shows that 52 percent of adults want to see the tax reduced or abolished altogether.

Of these, more than a quarter (27 percent) want IHT to be scrapped. Women (29 percent) are more likely to abolish the tax than men (25 percent), while 50-64 year olds are the most in favor of the tax being abolished, and 31 percent for its abolition.

This compares to just 21 percent of 18- to 34-year-olds who want it removed.

A quarter of adults (25 percent) want IHT to be reduced, with people over 65 having the most advantage at 30 percent, compared to just 22 percent of 35- to 49-year-olds.

Mark Collins, head of tax at Handelsbanken, said: ‘The fact that IHT revenues are unprecedented in both nominal and percentage of GDP underlines how important the tax is to the government’s overall tax revenue.

‘Government projections indicate that IHT revenues will rise to over £6.7bn in the current fiscal year, underscoring once again the importance of seeking advice and reviewing your business regularly to reduce your exposure to estate taxes.’

The data is supported by similar findings from polling agency YouGov. The survey found that 48 percent of people were in favor of removing the tax, while 16 percent were in favor of a 40 percent increase in the current rate.

In addition, nearly two-thirds (63 per cent) are in favor of raising the £325,000 threshold against which a deceased’s estate is levied.

James Ward, partner and head of a private client at law firm Kingsley Napley, said: “Freezing the nil bond for estate taxes has been a passive way of raising the IHT tax from the last year-on-year rise in property prices.

“However, with the expected slowdown in the real estate market, extending the freeze may not yield as much as predicted in some quarters.

“IHT has always been an unpopular tax, but I think those in the scope should realize that positive reform is unrealistic right now.

“Hunting era priorities are very different from Truss’s, so a freeze is probably to be welcomed, compared to what could have been.”

Sarah Coles, senior personal finance analyst at Investment Hargreaves Lansdown, added: “Extending the zero-rate bond freeze is a tried and true technique that many chancellors have relied on, so I’m not ruling it out.

“It wouldn’t be a huge waste of money, though, because despite being Britain’s most hated tax, it’s paid by only 4 percent of estates.

Meanwhile, depending on what the chancellor is considering for capital gains tax, it could raise a lot more money. For example, if he were to align the rates with the income tax rates, it could bring in £16 billion.

“But big moves like this can encourage investors to hoard assets because holding them for life can help them avoid CBT.

“It can disrupt investment decisions, and because it encourages landlords to hold onto real estate, it can also create blockages in the real estate market.”

Coles goes on to say that while Hunt may be drawn to smaller changes that are less noticeable to the public to avoid controversy, the need to fund spending commitments may make him willing to accept bigger changes.