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Inheritance tax incentive would be regressive, says Tax Faculty

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A tax credit would be more progressive than the government’s proposal to levy a lower rate of inheritance tax where the deceased leaves a charitable legacy of 10% or more of their estate, the ICAEW Tax Faculty said.

A tax credit would be more progressive than the government’s proposal to levy a lower rate of inheritance tax where the deceased leaves a charitable legacy of 10% or more of their estate, the ICAEW Tax Faculty said.

Under the government proposals, for deaths on or after 6 April 2012 such estates would pay IHT at 36% instead of the main rate of 40%.

But the Faculty said the proposals would be ‘regressive once the charitable legacy exceeds the 10% threshold’.

‘Although the proposals might nudge people into increasing gifts to charities to the 10% threshold, they may nudge those who contemplated giving above the 10% threshold into giving less,’ it said.

The Faculty suggested that IHT at the standard rate of 40% should be offset by a ‘non-refundable tax rebate’ equal to 10% of the proposed reduced rate, subject to the 10% threshold.

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