Thread by @David_Sturrock

What would be effects of a cut to inheritance tax?

📊New @TheIFS analysis with @arunadvaniecon

Halving the rate from 40% to 20% would offset the fiscal gains from cuts to benefits expected next week. 1/

ifs.org.uk/articles/halvi…

Cuts would come at a growing fiscal cost, doubling in real terms by 2032-33. 2/

As we know, a small number of deaths result in any inheritance tax being paid (4% in recent years, rising to 7% soon).

Over 90% of people would not benefit from a tax cut. 3/

83% of the benefit from a cut would go to the top 5% of estates.

These estates are worth over £1m.

Halving the rate would allow these estates to pass on £180,000 more after tax on average. 4/

The benefits would be geographically concentrated with 1 in 6 in London paying IHT, eight times higher than in the North East. Many estates would benefit also in the Home Counties. 5/

Those receiving inheritances from taxable estates are highly likely to be well-off themselves.

Someone in the top fifth of earners is eight times more likely to be a beneficiary of an estate that sees a tax cut than someone in the bottom fifth of earners. 6/

If the Chancellor is going to cut inheritance tax, now would be a good time to also rationalise the tax.

Our inheritance tax is riddled with special exemptions. These allow the largest estates to pay a lower tax rate than others. More on that here: 7/ ifs.org.uk/publications/r…

Capping release for business and agricultural assets and bringing pension pots into the scope of the tax could fund a reduction in the IHT rate to 30% for the part of estates worth up to £2m. 8/

Cutting the inheritance tax rate without reforming the tax would mean a missed opportunity to rationalise the system and represent an unadulterated tax cut for the largest estates. 9/9