The UK’s chancellor is considering closing inheritance tax loopholes in next month’s budget, according to an article in the Daily Mail this week.
The proposed closures could raise hundreds of millions of pounds a year.
One option is to change the rule where people invest in agricultural land or other business assets which are passed on to their children without being taxed on their value if they are part of the person’s estate when they die. The Treasury hopes that by closing the loophole it will be able to raise about £800 million a year to spend on infrastructure prospects.
Inheritance tax ‘not fit for purpose’
The head of the Institute for Fiscal Studies, Paul Johnson, warned earlier this month (February) that inheritance tax is not ‘fit for purpose’ because it is too easy for rich people to find ways to avoid paying it.
According to the Mail article, the chancellor is thought to be investigating the agricultural loophole in particular. He is also understood to be interested in business property relief which allows for 50 or 100 percent off inheritance tax if the deceased person has an interest in a firm or shares in an unlisted company.
Gifts are another issue, where people give money to their children before they die. Such gifts are exempt from inheritance tax as long as they are awarded seven years before someone dies. The Institute for Fiscal Studies has said this could be extended.
‘Gaping loopholes in the system’
Adam Corlett, an economist at the think-tank he Resolution Foundation, told the Daily Mail “the gaping loopholes” in the inheritance tax system helped super-wealthy people avoid paying their fair share and undermined public trust in systems. Money clawed back from the loopholes would be better spent on “levelling up” living standards across the UK.
Agricultural relief—50 or 100 percent relief on agricultural properties—cost the Treasury £515million in 2017/18. The Mail article claims this tends to benefit investors and trusts who buy land because of the favourable tax treatment, and not so much active farmers.
Mr Johnson urged the chancellor Rishi Sunak not to ditch his predecessor Sajid Javid’s fiscal rules committing the Government to bringing down debt. Mr Sunak, he said, should recognise more spending required more tax, and that he would need to raise taxes or borrow more if he wanted to avoid spending cuts.
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