Given that the measure had been flagged for some time, few should have been caught off guard on Wednesday when George Osborne announced the effective increase in the Inheritance Tax threshold to £1mil by 2020. For those wondering why he decided to do so, one need look only at the popularity of the tax: people just do not like it! Indeed it was 2007 when Gordon Brown was forced to resile from calling a snap election because the Conservatives had promised to introduce this threshold if elected.
And now, we’re at a bit of a crossroads with the tax. As it stands, Inheritance Tax will only fall on the 37,000 wealthiest estates. In terms of tax take, last year it brought in just £3.7bn, which is very low in comparison with other taxes (for instance, VAT brought in £108bn alone). So in absolute terms, it is now a tax paid by very few people and brings in very little revenue. The Conservatives are certainly not going to reverse this trend and one posits that, given what occurred in 2007, Labour will not touch it either.
All of this is to be regretted. Inheritance Tax, whilst utterly flawed in the UK in practice, is not devoid of justification in principle. It is a wealth tax, and could be an equitable way of generating revenue for the exchequer from unearned income, rather than relying so heavily upon taxing earned income.
But right now, as has become clear, it’s brand name is toxic. What to do with a toxic brand??