The Spring Budget introduced a new relief in inheritance tax.
While fiscally very small, this new allowance for passing on land
used for ‘environmental land management' adds to a lengthy and
costly set of reliefs and exemptions in the tax. There are
several reforms that could be enacted that would move towards
closing some of these loopholes, make the system fairer, and
raise revenues that could be used to reduce the main rate of
inheritance tax or fund other tax and spending priorities.
Specifically, abolishing the exemption given to a certain class
of shares, limiting the scope of agricultural and business
reliefs, and bringing pension pots into estates could raise
around £1.6 billion, £1.8 billion, and £0.4 billion,
respectively, in 2029–30.
David Sturrock, a Senior Research Economist at the
Institute for Fiscal Studies, said:
‘Inheritance tax is littered with special reliefs and exemptions
which make the tax unfair. The Spring Budget introduced yet
another relief to this long list. Rather than gradually carving
out more and more assets from the tax, the government should take
steps to reduce or eliminate some of the major exemptions in the
system. Eliminating the special treatment given to some shares,
capping reliefs for business and agricultural assets, and
bringing pension pots into the scope of the tax would make the
system fairer and raise revenues.'
Arun Advani, Associate Professor at the University of
Warwick, said:
‘Last year's rumours of inheritance tax abolition were proved
wrong. There was no big-bang change to the tax, but instead it
looks to be facing death by a thousand cuts, as yet another
relief was introduced. The top four reliefs alone reduce the tax
take from inheritance tax by 38% relative to if they were
scrapped.'
Mubin Haq, CEO of abrdn Financial Fairness Trust,
said:
‘A key factor undermining support for taxes is the public
perception that there are loopholes a small minority are taking
advantage of. That's the situation facing inheritance tax, with a
myriad of reliefs available. Clamping down on a few of the main
exemptions could increase the amount raised through inheritance
tax by over one-fifth. That's over £2 billion in additional
revenue by the end of the decade, which could fund our
overstretched public services.'
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ENDS
Notes to Editor
Raising revenue from closing inheritance tax
loopholes is an IFS comment by Arun Advani,
(University of Warwick and IFS) and David Sturrock (IFS and
University College London).
