abolishing inheritance tax would cost £15bn a year, analysis says

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abolishing inheritance tax would cost £15bn a year, analysis says

By 2032, scrapping inheritance tax would cost the government nearly £15bn a year in lost revenue, according to analysis by the Institute for Fiscal Studies, which follows calls from Tory MPs for the main tax on inherited wealth to be abolished.

The HMRC report revealed that 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.

While London has the largest estates to pay taxes, hotspots in Sussex, the Cotswolds and surrounding Birmingham will have the greatest number per 100,000 residents.

The IFS report, Reforming Inheritance Tax, found that the wealthiest fifth of donors will bequeath an average of £380,000 per child in 2024 and pay inheritance tax of about 10% of this amount.

The least wealthy fifth of parents will leave less than 2m pounds per child, down from a year earlier.

The authors calculated that if the money bequeathed through inheritances next year were to be equally shared among all 25-year-olds, each would receive about £120,000.

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

While Downing Street has sought to play down speculation that the prime minister was making plans to abolish the tax, calls for reforms that allow households to pass on more of their assets are growing in the conservative party.

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

On a wealth worth £325,000, inheritance tax is charged at 40%. If the property is transferred to children or grandchildren and spouses share their benefits, individuals receive an extra £175,000 allowance. It takes the amount of a married couple to £1m, which allows them to distribute a seven-figure sum tax-free.

Sunak's proposals are under consideration for the 40% rate to be reduced,paving the way for it to be abolished in future years.

The IFS said it would reduce the cost of abolishing IHT by 7bn if implemented this year, with about half of the benefit going to those with estates of £2.1m or more at death. With an average tax cut of an estimated£1.1m, these 1% of estates would benefit from an average tax cut of an estimated £1.1m.

The report said that the work-age generations were among the most vulnerable.