IFS says inheritance tax could cost £15bn a year

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IFS says inheritance tax could cost £15bn a year

The Institute for Fiscal Studies said scrapping inheritance tax would cost the government almost 15bn a year in lost revenue by 2032, which is the equivalent of the main tax on inherited wealth to be abolished.

The HMRC figures show a fewer than 4% of estates paid inheritance tax in 2020-21 but the rapid growth in wealth among older individuals meant this number was set to rise to more than 7% over the next decade.

Although London has the most estates liable to pay taxes, hotspots across Sussex, the Cotswolds and surrounding Birmingham will have the greatest number of residences per 100,000 residents.

In 2024, the wealthiest fifth of donors will bequeath an average of £380,000 per child, and pay inheritance tax of about 10% of this amount, the IFS report said.

The least wealthy fifth of parents, however, will leave less than £2,000 a year for their children.

If the money bequeathed by inheritances were to be equally shared between all of the 25-year-olds, each would receive about £120,000.

Rishi Sunak is believed to be considering a inheritance tax cut as he tries to woo voters and create clear dividing lines with Labour.

Although there has been no evidence of a plan to abolish the tax, calls for reforms that allow households to pass on more of their assets are rising in the conservative party.

Anthony Browne, a Tory MP for South Cambridgeshire, said he was worried that without reform, many middle-income households would pay large sums while the super rich used trusts and other loopholes to avoid paying the tax.

The tax on wealth over £325,000 is calculated at 40%, with an income tax of 40 per cent. If a person passes a gift to children or grandchildren or spouses, they have an extra £55,000 allowance toward their main residence, which is transferred to their spouses. The income tax-free option allows a married couple to distribute a seven-figure sum tax-free.

Sunak's proposals for the 40 percent rate to be reduced are understandable,paving the way to abolish it in future years.

The IFS said the cost of abolishing IHT would be £5bn if implemented this year, with about half of the benefit going to people with estates of £2.1m or more at death. The average tax cut of an estimated £1.1m would benefit 1% of estates.

The report said that working-age generations were a critical part of the nation's economy.