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The UK government is reportedly considering a cut to inheritance tax (IHT) ahead of the next general election, despite being forecast to raise around £7.2bn in 2023/24
It is one of a number of announcements supposedly being examined by the prime minister in the run-up to the Conservative Party conference in Manchester next week.
However, MPs are split over the timing of reported plans to cut the tax, which have been announced according to the Sunday Times.
Currently, IHT is charged at 40% for estates worth more than £325,000, with an extra £175,000 allowance towards a main residence when passed to children or grandchildren.
The vast majority of UK estates fall below the threshold, however, with just 3.73% of deaths having resulted in an IHT charge for the tax year 2020-21.
Between April to August 2023, HMRC raked in a total of £3.2bn in IHT receipts, which was £300m higher than in the same period a year earlier and helped by the nil rate band being frozen at the £325,000 cap until 2028.
Among the current proposals under consideration is to reduce the 40% rate in the budget in March, paving the way to abolish it entirely in the future.
Some Conservatives want to scrap the levy, including former prime minister Liz Truss. But Labour questioned how such a move would be paid for, and whether it would be fair.
The Office for Budget Responsibility (OBR) forecast that IHT would raise £7.2bn in 2023/24 and 2024/25, representing 0.7% of all receipts.
Darren Jones, shadow treasury chief secretary, said: ‘A year ago, Liz Truss trashed the economy with unfunded tax cuts. Now Rishi Sunak is doing what Liz Truss wants. Abolishing inheritance tax – which 96% of people never pay – is an unfunded tax cut of £7.2bn per year. That is the equivalent of paying for about 63,000 nurses, 44,000 teachers and 41,000 police officers.
‘This won’t help the vast majority of hardworking families. A couple can already pass on a £1m house entirely free of inheritance tax, and only 4% of households pay it.’
Jones, like others, has written to the chancellor demanding answers to their questions on how such a change might be funded.
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