Will the chancellor increase inheritance tax in the UK come the Autumn Budget, a report on the personal finance website The Motley Fool asked.
Chartered accountant Alice Guy thinks the rise is likely to take place, thanks to the huge hole in the government’s bank balance attributed to the costs of the government’s Covid-19 measures, which according to the BBC in the first year of the pandemic (April 2020 – April 2021) resulted in borrowing of £299 billion, the highest figure since records began in 1946.
That spending continued throughout the second half of 2021, with expenses including the continued furlough programme, mass Covid testing, the vaccination programme and the temporary increase to Universal Credit. Government debt now stands at £2,224.5 billion, according to the Office for National Statistics.
Limited options for tax rises
Ms Guy thinks the chancellor is unlikely to raise income tax, which does not leave many other options. At present, inheritance tax rules mean that some people can leave £1 million tax-free, thanks to the residence nil rate bands. If the allowance was removed or reduced, more estates would qualify for inheritance tax.
An increase in the tax would also share the burden across the ages. National insurance has already been increased, a tax mainly paid by people of working age.
Raising inheritance taxes would lead to benefits from the current high price of properties. Many of the baby boomer generation benefited from huge increases in property prices and have significant property wealth compared to the other generations. There has been no tax bill on the increased property prices in their lifetime.
IHT ‘levelling up’
Much has been said about the UK government’s ‘levelling up’ policy, though little has been done so far. A rise in inheritance tax could demonstrate the policy in action by targeting wealthier people.
As the UK’s inheritance tax rules are complicated, the government might seek ways to abolish some of the reliefs.
Should the government abolish the nil residence rate band and cut the standard nil rate band to £500,000 which equates to £250,000) for each person in in a married couple), this could mean the heirs pay an extra £40,000 in tax. Someone who owns a property worth £1 million or more might result in heirs receiving an extra £200,000 tax bill.
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