Inheritance tax would be 'all but abolished'

Conservative plans to slash inheritance tax would effectively abolish the tax "for practical purposes", shows research by the leading accountants, Grant Thornton, for The Independent. In the proposals by the shadow chancellor George Osborne, unveiled in 2007, the threshold would be raised from the present £325,000 to £1m.

That means the yield would drop below £1bn – compared to £3.9bn taken in inheritance tax in 2007 – raising questions about where the Conservatives might make up the shortfall as they seek to tame the budget deficit run up by New Labour.

Last year, Kenneth Clarke, the shadow business spokesman and former Tory chancellor, said such concerns would leave the proposed cut as an "aspiration". But a poll of Tory candidates suggests there is still much pressure to deliver the pledge early in the life of a Cameron government.

Both the present arrangements and the Osborne plan permit the transfer of a spouse's allowance on their death, making a combined threshold of £650,000 (under the present rules) or £2m (under Osborne). But at £2m, the number of estates affected plummets to perhaps 3,000 a year, and the very rich tend to be able to plan their tax affairs to avoid the levy completely.

Mike Warburton, the director of entrepreneurial services at Grant Thornton, said: "For all practical purposes, inheritance tax would be abolished under Mr Osborne's proposals. Whichever way you look at it, they would make inheritance tax a tax on the rich rather than on the mass affluent."

In the last year for which there was detailed information, 2006-07, there were 49,782 estates worth more than £300,000, but only 5,009 above £1m. Mr Warburton added: "If there were only 5,000 or so deaths with estates over £1m, and 35 per cent of these had a spouse exemption available, it means that with an incoming Conservative government and with a £1m transferable threshold, only about 3,000 estates would be caught for inheritance tax."

The take from inheritance tax peaked in 2007 at £3.9bn, but has been falling in any case, thanks to Chancellor Alistair Darling's decision to raise the threshold shortly after Mr Osborne's announcement, widely credited with derailing plans by Gordon Brown for an early election in the autumn of 2007, the "election that never was". Depressed stock markets and the slide in property prices in 2008 have also reduced revenues.

Contrary to the image sometimes conjured up, death duties, the precursor to inheritance tax, were once paid by a much larger slice of the population than is now liable for inheritance tax. The earliest records, going back to 1939, show that about 30 per cent of the relevant population were caught in the death duties net.

Mr Warburton said: "We now have the rather surprising statistic that, in the 12th year of Labour, we have the smallest number of families caught for inheritance tax and its predecessor taxes since records started 70 years ago."

Start your day with The Independent, sign up for daily news emails
Sport
England's women celebrate after their 3rd place play-off win against Germany
Women's World CupFara Williams converts penalty to secure victory and bronze medals
Arts and Entertainment
Ricardo by Edward Sutcliffe, 2014
artPortraits of LA cricketers from notorious suburb go on display
News
newsHillary Clinton comments on viral Humans of New York photo of gay teenager
Arts and Entertainment
The gang rape scene in the Royal Opera’s production of Gioachino Rossini’s Guillaume Tell has caused huge controversy
music
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Sales Administrator - Spanish Speaking

£17000 - £21000 per annum: Recruitment Genius: This is a fantastic opportunity...

Recruitment Genius: Sales Administrator - German Speaking

£17000 - £23000 per annum: Recruitment Genius: This is a fantastic opportunity...

Recruitment Genius: Sales Administrator - Japanese Speaking

£17000 - £23000 per annum: Recruitment Genius: If you are fluent in Japanese a...

Recruitment Genius: Graphic Designer - Immediate Start

£16000 - £25000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

The Greek referendum exposes a gaping hole at the heart of the European Union – its distinct lack of any genuine popular legitimacy

Gaping hole at the heart of the European Union

Treatment of Greece has shown up a lack of genuine legitimacy
Number of young homeless in Britain 'more than three times the official figures'

'Everything changed when I went to the hostel'

Number of young homeless people in Britain is 'more than three times the official figures'
Compton Cricket Club

Compton Cricket Club

Portraits of LA cricketers from notorious suburb to be displayed in London
London now the global money-laundering centre for the drug trade, says crime expert

Wlecome to London, drug money-laundering centre for the world

'Mexico is its heart and London is its head'
The Buddhist temple minutes from Centre Court that helps a winner keep on winning

The Buddhist temple minutes from Centre Court

It helps a winner keep on winning
Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'