Labour’s plan to reform Inheritance Tax if elected
This 2019/20 financial year, the inheritance tax take is expected to break all records with £5.6bn expected to be collected by HMRC.
With more work needed to be done in the sector on efficient financial planning, there have also been calls by opposing political parties to weigh in on the issue of inheritance tax.
Labour’s IHT pledge
The Labour Party has unveiled its political manifesto in the run up to the general election with Jeremy Corbyn making several promises spanning areas such as pensions and tax.
However, one particular pledge sees Jeremy Corbyn’s plans to reverse the inheritance tax (IHT) cuts brought in by former Conservative chancellor George Osborne in an attempt to target high net worth individuals (HNWIs).
This means that the Residential Nil Rate band (RNRB) or “Family Home Allowance” – introduced as recently as 2017, would be renounced.
In comparison, the Conservative Party said this week that there are no changes to inheritance tax. The Conservatives have said they would impose a 3% stamp duty land tax surcharge for non-UK residents buying property, but the proceeds will go directly to the budget for tackling rough sleeping. By the fourth year of the period, this is expected to add £120m a year to tax revenues.
The end of the RNRB?
Initially brought in to increase an individual’s and couple’s inheritance tax allowance – to apply the RNRB to your estate you must leave an owned property which was at one time your home, and it must go to your direct descendants (e.g: your offspring)
Scrapping the RNRB would be a blow to all those individuals who have gained property wealth through rising property prices over the past few decades.
Other parties’ stance on IHT
This marks a surprising U-turn in comparison to previous Labour pledges, having previously discussed plans to scrap inheritance tax in its current form altogether.
The alternative was to give everyone a gifting allowance of £125,000 during their lifetime – with anything above this taxed at income tax rates. But those ambitions are no longer anywhere to be seen.
Similarly, Inheritance tax is a noticeable omission from the Liberal Democrats manifesto.
Just a year ago, party leader Vince Cable proposed scrapping inheritance tax and replacing it with a new levy on gifts worth more than £3,000, charged at the same rate as the giver’s income tax liability. However, Jo Swinson’s manifesto has sensibly avoided mentioning the outspoken issue.
This can be contrasted with The Brexit Party’s pledge to scrap inheritance tax altogether, whilst The Green Party’s plans call to merge the Inheritance Tax with Income Tax, Employees National Insurance, Capital Gains Tax and Dividend Tax into a one, single Consolidated Income Tax (CIT).
In summary, scrapping the RNRB allowance and not replacing it with a suitable alternative will not only stem the flow of wealth between the generations but also set up younger generations to be worse off than their parents.