Reform IHT to pay for the cost of COVID-19, say inheritance planning professionals

The UK Chancellor should scrap inheritance tax and replace it with a radical new alternative to raise more revenue and help pay for the cost of COVID-19 support measures, according to a survey of 500 professionals who advise families on inheritance planning.

57 per cent of professionals including solicitors, tax advisors, financial planners and accountants who took part in a recent STEP survey support proposals by MPs for the current IHT regime to be replaced with a simpler flat rate, with far fewer reliefs and exemptions. This would greatly simplify the system, reduce avoidance and increase fairness for families. The respondents represent clients from all levels of the wealth scale, including middle income families whose home is their main asset and therefore are affected particularly adversely by IHT.

Overhauling IHT is more popular as a revenue raiser than either a one-off wealth tax or an annual wealth tax, with 36.2 per cent of respondents favouring the IHT route while the other options are preferred by 29.04 per cent and 12.88 per cent respectively. The findings come ahead of ‘Tax Day’ on 23 March, when the Government is due to consult on a series of big tax changes.

A 2020 report by the All-Party Parliamentary Group for Inheritance & Intergenerational Fairness called for the introduction of a ‘flat-rate gift tax’ to sweep aside the current IHT system’s byzantine array of reliefs and exemptions. The proposals would tax all lifetime and death transfers of wealth, with very few reliefs and a low flat rate of 10 per cent (the current rate is 40 per cent). Rates would reach a maximum of 20 per cent on estates of over GBP2m.

Today’s STEP survey finds that 65 per cent of inheritance advisors agree with the APPG recommendation of a 10 per cent flat rate as the best way to simplify the IHT system and discourage avoidance by wealthier families. Just under half (45.8 per cent) of respondents agree that GBP2m is an appropriate threshold for estates to pay the higher rate, while 28 per cent think it should be higher and 7.6 per cent think it should be lower.

Emily Deane, Technical Counsel at STEP, said:

‘The current IHT system is complex, ineffective and unfair. Our survey shows there is strong support by practitioners who know better than anyone the complexity of IHT and a new system, like the one recommended by the APPG, is the preferred route the Chancellor should take to raise funds to pay for the cost of COVID-19 support and sort out an unjust tax.

‘A broadly based low-rate tax with few reliefs and exemptions is far preferable than a tax with a high headline rate that the well-advised can avoid by use of complex reliefs and exemptions. The flat rate proposed by the APPG would apply across the board and lead to less avoidance, while keeping the UK attractive for wealthier individuals.’

John Stevenson MP, Chair of the APPG for Inheritance & Intergenerational Fairness, said:

‘Our report in 2020 concluded that fundamental reform of IHT is badly needed. Reform would simplify the system, reduce red tape, be fairer and is likely to provide extra tax revenue. We call on the Chancellor to look at fundamental reform of this unpopular tax as Tax Day approaches.’

[ENDS]

Notes to editors

• Inheritance tax (IHT) is a tax on transfers of wealth, mainly levied on a person’s death. It is unpopular and ripe for reform; the tax is often criticised as complex, ineffective, riddled with anomalies, distortionary and unfair.
• STEP surveyed its UK members on IHT reform by email in late February 2021 and received 510 responses.
• The majority (60.81 per cent) of respondents were solicitors, with the remainder made up by tax advisors (13.33 per cent), accountants (6.87 per cent), financial planners (5.05 per cent), barristers (1.01 per cent), private bankers (0.2 per cent) and others (12.73 per cent). The advisors act for clients predominantly in the affluent (>GBP100k liquid financial assets) and HNW (>GBP1m liquid financial assets) brackets.
• A 2020 report by the All-Party Parliamentary Group for Inheritance & Intergenerational Fairness – for which STEP provides the secretariat – called for a flat-rate gift tax to operate on all lifetime gifts, with an annual gifts exemption of GBP30,000, taking out most lifetime giving of smaller households.
• There would be no complicated business property or agricultural property reliefs.
• The exact rate at which the flat-rate gift tax should be set is a matter for policymakers but the APPG recommended a rate between 10 per cent and 20 per cent with 10 per cent on lifetime transfers and estates of under GBP2m and 20 per cent for estates worth over GBP2m on death. Anything higher will increase pressure for special reliefs leading to avoidance which is precisely the problem at the moment.
• APPG FAQs (pdf).

Contact details:

For more information on any of these issues, or to request an interview with Emily Deane, please contact Nick Reading or Caroline Merrell at Citigate Dewe Rogerson: 020 7638 9571.

About STEP:

STEP is the global professional association for practitioners who specialise in family inheritance and succession planning. STEP works to improve public understanding of the issues families face in this area and promotes education and high professional standards among its members. STEP members help families plan for their futures, from drafting wills to issues surrounding international families, protection of the vulnerable, family businesses and philanthropic giving. Full STEP members, known as TEPs, are internationally recognised as experts in their field, with proven qualifications and experience.