As reported last week, the 2022-23 tax year is set to represent a record breaking year for inheritance tax receipts.
With the IHT threshold frozen until the 2027-28 tax year, it is widely expected that HM Revenue & Customs will continue to see record growth over the coming years as inflation and sound financial planning drives the growth of estates.
As reported by FTAdviser: “Some have forecast this could net the government more than £1bn, with the average IHT bill reaching £304,567 by 2025-26 and £345,084 by 2027-28, according to research by Wealth Club.”
The social and economic quandary across the political divide is whether IHT is an appropriate and ‘fair’ tax, making this a potentially philosophical conversation.
As always, there are arguments in favour of and against IHT, with the former suggesting that inherited wealth is in itself unfair and the latter suggesting that those who have accumulated wealth should be able to bequeath it to whomever they wish.
Let’s first consider the viewpoint that inheriting wealth is an unfair action. The argument here is fairly straightforward: inherited wealth is discriminatory as it provides an unfair advantage. Following this logic, everyone is born equally and, therefore, should make their own way in the world.
The pro-IHT stance also argues that accumulated wealth should be shared for the greater good, making it a moral obligation as well as a fiscal tool.
Seeing as the UK government collects more than £5bn of IHT receipts each year, it is understandable why government would find this opportunity to collect tax appealing. It is also understandable that some would find it appealing to use such wealth to support systems like the NHS, social care and our armed forces.
Additionally, there is the argument that inherited wealth stifles innovation and productivity for the receiving generation. Entrepreneurs like Bill Gates, Mark Zuckerberg and Simon Cowell, for example, have publicly stated that they do not intend to pass their fortunes on to their children to avoid distorting their lives and careers (though doubtful they will be left penniless).
Those against IHT argue that they paid tax on their income, as well as their spending, and are now unfairly having their hard-earned wealth taxed a third time upon death.
The argument here is that someone who has worked hard to build their wealth and/or afford a nice home should be able to pass it on to their children or whomever they wish. The government partially addressed the issue of property in 2015 with the introduction of the resident nil rate band, meaning that a married couples’ estate – if it includes their residential property – can be worth up to £1mn before IHT becomes applicable.
