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The Myth of the £1 million Inheritance Tax Threshold

Posted: Friday, 4 January 2019 @ 13:43
We are approaching a general election next year, and as what happened at the last election, the Conservative party will have a manifesto commitment to raise the inheritance tax threshold to £1 million.

For clarity, each individual has a new rate band of £325,000 tax-free and if they are married there is the prospect of transferring all of their estate to a spouse inheritance tax-free, with the survivor having a maximum of £650,000 to handover inheritance tax-free.

It may very well be the desire of the current prime minister and chancellor to raise this threshold, but this is simply not going to happen.

The first reason is clear. It is obvious no political party is going to get a majority next year. This will mean if the Conservatives form the next government they will be hamstrung by the political parties they are in government with all the parties they doing a deal with. The Conservative Party can promise what they want but as they are not going to get a majority, this pledge is going to be difficult to implement.

The second reason is even more fundamental, we are still in an era of austerity where the government is desperate to maximise its tax receipts in order to reduce the government deficit. No matter how the Conservative party spin this, they have not eliminated the deficit.

And here is the rub. Inheritance tax is a nice earner for the government stop due to rising house prices, more people are being impacted by the £325,000 threshold which has not changed since April 2009. Had the threshold being kept in line with inflation, it would now have risen to £380,152. At 40% of the value of any state above £325,000, Britain has the highest rates of inheritance tax in Europe.

Total payments reached £3.4 billion to the Treasury which is close to the high of receipts at pre-recession levels. This is a nice earner and the Conservatives in power have done nothing to stem it.

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