Inheritance Tax rise won’t just hurt nation’s farmers

While everyone will be aware of the Inheritance Tax (IHT) proposals for farmers who have been driving their tractors in protest through Whitehall they may be less aware of the wider issue surrounding ordinary homeowners and the impact this particular tax will have on an increasing number of families in the coming years.

The latest statistics from HMRC highlight this with a record £6.3 billion of IHT charged in the nine months from 5th April to 31st December 2024. This is an 11 per cent increase on the same period received in 2023 and indicates just how many more estates are being impacted by this tax. An enormous £620 million was collected in December alone, which represents a 13 per cent increase on the £547m raised in December 2023. While 4 per cent of UK estates are currently liable for inheritance tax the government estimates that this will rise to 10 per cent by 2030, with revenue estimated to be £13.9bn.

The Taxpayers Alliance believe IHT is “distortionary, unfair and deeply unpopular” and that the nil-band rate should be increased to a minimum of £500,000 but preferably £1m and the rate cut in half from 40 to 20 per cent, which would match the rate for farm owners.

Inheritance tax has had its threshold frozen at £325,000 since 2009 and is currently set to remain at that level until 2028 at the earliest. Had it risen by inflation in the intervening years it would be at £508,898 by December 2024.

Due to the impact of inflation on house prices IHT now affects many more individuals and families than it has in the past. While many people believe that IHT only affects the very rich, the reality is that substantially more people are being drawn into paying the tax simply because their home has increased in value. This means a large number of people who would not view themselves as wealthy will find their relatives facing a potentially huge tax bill simply because they owned a property which rose in value over decades.

It should be remembered that IHT starts at £325,000, which is currently less than the average price paid for a property in Edinburgh. And areas like East Renfrewshire and East Lothian are not far behind. For example, when land and buildings tax (LBTT) was introduced just 3.2 per centof properties sold for more than £325,000. In the latest month of December 2024 that figure had risen to 19.9 per cent of all properties.

What people miss is that the wealthiest people have accountants and lawyers to ensure their clients’ estates will not be impacted by IHT. The ones who will actually be hit by this deeply unfair tax are the ordinary people who don’t have schemes and trusts in place to avoid tax. With the bulk of most peoples’ wealth contained in their homes it is these people, who have worked and saved, and paid a mortgage, who will find their relatives hit with substantial bills after their death.

Taxing thrift, savings, and aspiration should never be government policy. Taxing consumption makes more sense as it is about choice. The latest figures highlight just how quickly IHT revenue is rising and how many more people are being unjustly impacted by this tax.