The Chancellor’s decision today to seemingly pull back from a decision to reduce Inheritance Tax in the Autumn Statement nicely swerves questions of fairness and efficiency.
Would a reduction, in all reality, have had much of an impact on the average UK family?
Was this a missed opportunity to reform Inheritance Tax for the majority rather than the minority?
Would it have impacted the efficiency of the current probate administration process?
Finally, as the Shadow Chancellor herself asked … is this a decision delayed or a decision abandoned?
Leaking the likelihood of a reduction in the Inheritance Tax rate in the last few weeks, it felt like the Government were putting the feelers out to see how such a move would be met, and it appears the public response has led to a neat side-step.
Rather than a simple headline rate cut, a rise in the nil-rate band to a flat £500k would have delivered increased benefit to a greater number of estates and to the less wealthy families in the UK.
Freezing the thresholds again and simply cutting the rate of Inheritance Tax, as was being widely speculated, would impact fewer estates and purely benefit the wealthier of these.
Many have argued that this would simply be perceived as another tax cut for the rich, and that a rise in the thresholds would have been a fairer decision, more in line with the Government’s much discussed ‘Levelling Up’ policy.
The current Nil Rate Band has been £325k since 2009, with an additional residential nil rate band of £175k where property is passed to a direct descendant since 2017, making this £500k per person in total only under this specific criteria.
Clearly the speculated reduction in Inheritance Tax would have provided ammunition in the Houses of Parliament and on the street for the campaigning opposition parties in the run up to the general election next year.
There must also be concern with any change to Inheritance Tax as it stands. Given the delays at the Probate Registry experienced over recent years, you would expect that any change would only further add to these delays and create further backlog in the short to medium term, as training and revised documentation would need to be implemented as a starter for ten. For now, the focus can surely be on reducing the delays at least.
Of course, any future tax cut will be welcomed by those who will benefit, but the leaked ideas felt lop-sided and could have been seen as a missed opportunity for the majority of families about to go through the bereavement and probate process.
We will continue to watch this space, and whether these mooted reforms will be back again in the Spring Budget. For now, as you were.
Author: James Emery - Director