Abolition of inherited wealth tax could cost £15bn a year, says thinktank

Abolition of inherited wealth tax could cost £15bn a year, says thinktank

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

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

While 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 contributors will bequeath an average of £380,000 per child and pay inheritance tax of about 10% of this amount, according to the IFS report.

The most wealthy fifth of parents will leave less than £2,000 a year to their children.

If the money bequeathed by inheritances next year were to be shared equally between all 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 Downing Street has sought to deny speculation that the prime minister was developing plans to abolish the tax, calls for reforms that allow households to pass on more of their assets are rising in the conservative party.

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

Income tax is charged at 40% on wealth over £325,000. In England, individuals can receive an extra £175,000 for their main residence if it's passed to children or grandchildren, and spouses can share their allowances. The tax can now be paid by a married couple, which allows them to distribute a seven-figure sum tax-free.

Sunak's proposals for the 40 per cent rate to be reduced are widely seen to be a way to abolish it in future years, paving the way for it to be abolished.

The IFS said that the cost of abolishing IHT would be about 7bn if implemented this year and about half of the benefit going to those with estates of £2.1m or more at death. The 1% of the estates would receive an average tax cut of an estimated £1.1m in their bill.

The report said that s working-age generations are the most important sector in the world's economy.