Economists dismiss Tory push to scrap inheritance tax

Economists dismiss Tory push to scrap inheritance tax

Calls by senior Tories to abolish inheritance tax (IHT) have been met with scepticism from senior economists and tax experts.

More than 50 Conservative MPs, including former chancellor Nadhim Zahawi, have urged prime minister Rishi Sunak and chancellor Jeremy Hunt to scrap the tax, according to the Daily Telegraph.

But Paul Johnson, head of the independent Institute for Fiscal Studies, said the tax should instead be overhauled, as it tends to be easier to avoid for the very rich with broadly-based wealth than for those with only one asset.

He tweeted: “Rather than scrapping IHT we urgently need to reform it. It is genuinely unfair.

“The very wealthy pay an average rate half, or less, that paid by the moderately wealthy. If all you leave is the family house it’s hard to avoid. If you have millions it is absurdly easy to avoid.”

Inheritance tax is paid when a person’s estate is worth more than ?325,000 when they die, and they do not leave everything above the threshold to their spouse, civil partner, a charity or a community amateur sports club.

The Treasury said the 40 per cent levy, applied to the part of the estate above the threshold, raises more than ?7bn a year to help fund public services.

Inheritance tax applies to a small number of wealthy people. Most of us would see no benefit from scrapping it

New Economics Foundation

Dan Neidle, the founder of the Tax Policy Associates think tank, noted that abolishing it would mean losing that tax revenue “to benefit the wealthiest 4 per cent”.

He said on Twitter that most people believe the 40 per cent rate, one of the highest in the world, is “unfair”, but that the very wealthy only “pay about 20 per cent, thanks to over-generous exemptions”.

“The obvious answer: scrap/limit the exemptions, and use the revenues raised to reduce the rate. 25 per cent, or perhaps even 20 per cent.

“Make it a fair tax, applying at a fair rate to the upper-middle class, and at that same rate to the very wealthy.”

The New Economics Foundation think tank tweeted: “Inheritance tax applies to a small number of wealthy people. Most of us would see no benefit from scrapping it.

“To give our children the best chance in future we need this government to focus on fixing our crumbling schools and hospitals – not giving a tax break to the wealthy.”

Leading the charge of Tories calling for the tax to be eradicated is Mr Zahawi, the multi-millionaire former businessman who was sacked as Conservative Party chair following controversy over his own tax affairs.

He described the tax as a “spectre that haunts us alongside death” and said it was “morally wrong” to take someone’s assets on their death.

The Telegraph reported that the Conservative Growth Group of 55 MPs, formed by allies of brief former prime minister Liz Truss, will publish a paper on the issue as part of a campaign this month to convince the Treasury to abolish inheritance tax when it puts forward the Autumn Statement later this year.