The Institute for Fiscal Studies has produced a ‘comment’ section on potential reforms to IHT which could include removing some of the existing reliefs which, says the IFS, would ‘make the system fairer, and raise revenues that could be used to reduce the main rate of inheritance tax or fund other tax and spending priorities’. The analysis follows the announcement at Spring Budget 2024 of an extension to agricultural property relief to include land used for ‘environmental land management’ (the rationale being that, if relief is available when the land is being farmed, it also ought to be available when the land is used for conservation purposes – so as to avoid any disincentive for the latter).
The IFS suggests that removal of relief for shares listed on AIM (the alternative investment market) could raise around £1.6bn by 2029/30, while abolishing agricultural and business property reliefs completely could raise around £1.8bn (although the IFS suggests a cap on relief might be a more palatable solution, operating as a transferable nil-rate band). Bringing pension pots into scope of IHT would raise around £400m by 2029/30 suggests the IFS, noting that this figure is likely to increase as defined contribution schemes become more and more prevalent. The Institute describes the exemption for pension pots as ‘clearly unfair’ and serving no economic purpose, benefiting those who have sufficient other resources to fund their retirement and are able to pass on wealth tax-free via their pension.
David Sturrock, Senior Research Economist at the IFS and co-author of the report, said: ‘Inheritance tax is littered with special reliefs and exemptions which make the tax unfair. The Spring Budget introduced yet another relief to this long list. Rather than gradually carving out more and more assets from the tax, the government should take steps to reduce or eliminate some of the major exemptions in the system.’
The Institute for Fiscal Studies has produced a ‘comment’ section on potential reforms to IHT which could include removing some of the existing reliefs which, says the IFS, would ‘make the system fairer, and raise revenues that could be used to reduce the main rate of inheritance tax or fund other tax and spending priorities’. The analysis follows the announcement at Spring Budget 2024 of an extension to agricultural property relief to include land used for ‘environmental land management’ (the rationale being that, if relief is available when the land is being farmed, it also ought to be available when the land is used for conservation purposes – so as to avoid any disincentive for the latter).
The IFS suggests that removal of relief for shares listed on AIM (the alternative investment market) could raise around £1.6bn by 2029/30, while abolishing agricultural and business property reliefs completely could raise around £1.8bn (although the IFS suggests a cap on relief might be a more palatable solution, operating as a transferable nil-rate band). Bringing pension pots into scope of IHT would raise around £400m by 2029/30 suggests the IFS, noting that this figure is likely to increase as defined contribution schemes become more and more prevalent. The Institute describes the exemption for pension pots as ‘clearly unfair’ and serving no economic purpose, benefiting those who have sufficient other resources to fund their retirement and are able to pass on wealth tax-free via their pension.
David Sturrock, Senior Research Economist at the IFS and co-author of the report, said: ‘Inheritance tax is littered with special reliefs and exemptions which make the tax unfair. The Spring Budget introduced yet another relief to this long list. Rather than gradually carving out more and more assets from the tax, the government should take steps to reduce or eliminate some of the major exemptions in the system.’
