Inheritance Tax in the New Era: 2020
When Sajid Javid, the Chancellor of the Exchequer, hinted at the 2019 Conservative Party conference that scrapping inheritance tax ‘was on his mind’ he was merely taking his place in a long line of politicians of all parties who failed to carry out their plan.
In 1996, Ken Clarke promised to abolish the dreaded tax just 12 years after it had been introduced in 1984, calling it “a penalty on thrift, independence and enterprise”. But that didn’t happen.
Eleven years later, in 2007, shadow chancellor George Osborne promised to raise the tax-free threshold from £325,000 to £1m should his party come to power. But that didn’t happen either. It remains at a meagre £325,000 per individual.
True, once in government Mr Osborne introduced a relief that could be argued to achieve something similar but there is no £1m nil rate band … only one of the most difficult to understand tax relief provisions ever devised.in the residential nil rate band.
So wither inheritance tax following the December 2019 election?
The new government will have other things to reflect on in its early days so I will make four observations for the new year and inheritance tax.
First, the state has used death as its best opportunity to collect tax for hundreds of years. Think almost a thousand years at the very least and that is unlikely to change. Inheritance tax take is expected to break all records in the current financial year (2019/20) with £5.6bn set to be collected by HMRC.
Second, when it comes to taxes relating to death, politicians tend to fall back on tinkering mode rather than something more visionary. That is not to say that change doesn’t happen. I was around when inheritance tax was born from the old capital transfer tax regime in 1984. Older former colleagues even remember estate duty morphing into capital transfer tax in 1974. It can happen but it comes with much risk for the instigators. The mechanism may change but the principle does not.
Third, following the scrapping of this year’s main budget statement due to the general election, the two main parties both stated their intention to hold the next budget in February 2020. It may now be slightly earlier, of course. Watch that budget like a hawk!
Fourth, if you are a tinkerer and seismic change is on the too difficult pile, the heavy lifting has already been done by the Office of Tax Simplification in its “Inheritance Tax Review – second report: Simplifying the design of Inheritance Tax” Which was published in July 2019.
Find it at –
OK, it is over 100 pages long including appendices but it is a very easy read which deals with many of the shortcomings of inheritance tax. Any serious politician hoping to make his or her mark will have read this document. Most haven’t yet! There is too much here to quote from but you might anticipate the residential nil rate band edging towards something more like was originally intended (i.e. a £1m nil rate band per couple) and a significant, very significant, tightening of the fairly easy going and lax regime for business property relief for instance. Quite radical stuff for a tax which tends to move at a glacial pace which perhaps points to reform rather than revolution.
Nevertheless, these are turbulent, decade-defining times. The future does not always run as the past has done. Could we be facing a 1974 moment or a 1984 moment? Events and statements forming around and related to the immanent 2020 budget should at least see an indication of where the inheritance tax may be heading.