A potential plan by U.K. Prime Minister Rishi Sunak to cut inheritance tax has come under scrutiny as a study by the Institute for Fiscal Studies (IFS) suggests that the cuts could disproportionately benefit the wealthiest 1% of the population. The IFS report indicates that about half of the benefits of the proposed cuts would go to individuals with estates valued at £2.1 million or more, while the abolition of this tax would also worsen existing wealth inequalities in the country. The report also highlights that inheritance has been growing in recent times, indicating that parental wealth is set to have a greater impact on lifetime income for future generations. These proposed changes are seen as a strategic move ahead of the upcoming general elections to boost support for Sunak’s Conservative Party.
The U.K.’s inheritance tax, which is currently charged at 40% on estates valued at over £325,000, has been a divisive issue. The tax, in its present form, only applies to less than 4% of deaths in the country, resulting in relatively small revenues. However, the IFS estimates that revenues from this tax could double to over £15 billion in the next 10 years. Representatives from the British government emphasize the importance of the current inheritance tax in funding public services, despite the fact that over 93% of estates are projected to have no inheritance tax liability in the coming years. Talks on potential changes to inheritance tax are taking place against a backdrop of high inflation and high-interest rates, which have already put pressure on public finances and government debt. Critics argue that the current system is easy to circumvent and is considered unfair.
Reforms to the inheritance tax system, such as placing a cap on certain reliefs that allow individuals to avoid the tax, have been suggested by the IFS as a way to create a more robust source of revenue for the government. These reforms could generate up to £4.5 billion and could be used to fund public programs or tax cuts in other areas. Overall, the potential cuts to inheritance tax proposed by Sunak have raised concerns about wealth inequality and unfairness, while also highlighting the need for a comprehensive reform of the current system to ensure a more equitable distribution of wealth.