Currently IHT is assessed at 40%, but only on a minority of estates due to the generous allowances, the impact of tapering (i.e. reduction in tax on transfers made between three and seven years before death) and because of effective avoidance strategies employed by the wealthy.

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It is a tax intended to reduce social inequality and to raise funds from large transfers of what is essentially unearned income (at least by the recipient).

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When an individual dies, the total value of their estate is calculated based on current assets and any gifts made in the previous 7 years. Once any exemptions, allowances and tapering is applied, an IHT charge is calculated which is payable by the estate itself.  What remains is what can be passed on as inheritance.

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Despite its high profile, IHT is currently paid by less than one in 20 estates, and it raises less than 1% of total UK tax receipts.

There are a number of issues with IHT, some of which stem from public perception, and some of which are structural:

1. the political sensitivity and media framing around the topic is out of proportion to the number of estates impacted by it, and the amount of tax receipts it raises - less than 1% of total tax income.

2. many view IHT as an unfair "double taxation", since the deceased paid taxes on most of the income that created the estate.

3. with a little planning and advice, it is relatively easy for wealthy families to avoid.

4. there is a flat tax charge of 40% on all qualifying estates, regardless of size.

5. tapering and exemptions are not coherent in that annual allowances are too small and overall allowances are too big.

We propose:

• reducing the protections against IHT offered by trust arrangements.

• introducing graduating bands of tax based on the size of estates.

• increasing the annual tax free gift allowances.

• reducing the size of estates before they become liable for IHT.

• a shorter period before tapering begins but a more gradual reduction in the % charged.

We believe that our proposals would increase the number of estates liable for IHT, as well as the overall amount collected, but balancing this with a lower % charge for smaller estates.

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This would hopefully not only increase tax income, but also change public perception of IHT and reduce hostility towards it.

Please see below for more details on how our proposal could look in comparison to the current IHT structure.

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