Inheritance tax: who’s paying it, how much is it generating and is it just the rich who benefit from its abolition?

Published

2 years ago

September 27, 2023

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With political party conference season upon us and the Tories scrambling for ways to appeal to voters and lessen Labour’s lead in the polls, abolishing inheritance tax has again been floated as the next government giveaway.

So, how many people are paying inheritance tax and how much are they paying: will abolition allow grieving loved ones to save thousands or is this a boon to the homeowning Tory base?

Or is this just a sensible policy measure benefitting both groups, given house prices are still more expensive than they were before the pandemic and inflation stood for months in double digit territory?

With widespread dislike of inheritance tax, the incorrect belief among taxpayers that they’ll fork out because of the toll, calls for abolition and reform coming from all corners, yet only small percentages of assets being affected by the charge, Prime Minister Rishi Sunak may have landed on a policy that few would miss in its current form.

It is after all what Tories call the “most hated tax”.

While only a small percent pay inheritance tax, new data from the Institute for economic research, Fiscal Studies (IFS) says the sums could be significant to some: if all non-spousal inheritances transferred next year were equally shared between all 25 years olds, each would receive around £120,000.

How many are paying?

Latest available figures from the tax man, His Majesty’s Revenue and Customs (HMRC), show 27,000 estates paid inheritance tax in the year 2020 to 2021. An estate encompasses a person’s assets: their house, any jewellery or other valuables they might own. Though inheritance tax isn’t paid on pension and insurance money.

For context, more than half a million (577,160) people died in England and Wales in 2022.

Essentially, less than 4% (3.73%) of estates paid inheritance tax in the 2020 to 2021 year.

And the number of estates paying inheritance tax is up by 4,000 people since the previous tax year, 2019 to 2020, as the numbers of people who died increased during the COVID-19 pandemic.

What are they paying?

At present, inheritance tax is charged at 40% and applies to estates worth more than £325,000. There are, however, allowances that can mean its only paid on more valuable estates.

If a main residence is being passed to children or grandchildren a £175,000 allowance is added, meaning only amounts of £500,000 are subject to inheritance tax. Married couples can share that allowance, doubling it and allowing a £1m estate to be passed on to children tax free.

Sunak is said to be looking at reducing the levy in the budget in March, working towards an eventual abolition.

Official HMRC statistics show £5.76bn of inheritance tax liabilities were racked up in the 2020 to 2021 tax year. This was higher than usual – to the tune of £800m, a 16% increase – as COVID-19 caused a greater number of deaths that year.

This year more than £3bn has been generated in just four months, provisional HMRC figures showed, and June broke the monthly record.

While new highs of inheritance tax are coming in, other forms of wealth tax, like capital gains tax (CGT) – the levy on things like income from a second property or shares – are also reaching new highs, greater than inheritance tax.

CGT added £16.7bn to the public purse in the 2021 to 2022 tax year and came from 94,000 taxpayers, HMRC said.

Meanwhile the inheritance tax take from April to August this year was £3.2bn, £300m higher than in the same period a year earlier as asset values have increased and rate rises meaning more interest is charged on late payments to HMRC.

It is worth noting that tax receipts are up across the board. This is not unique to inheritance tax.

A combination of higher wages and more expensive goods (again, due to inflation) meant income tax, national insurance and capital gains tax yields were up. Overall HMRC said £19.8bn more was taken in from April to August this year than last, adding up to a total of £331.1bn.

The cost of abolition is £7bn, according to analysis from the IFS.

Who’s paying?

Notionally people passing on estates worth more than £500,000 would pay, but the figures demonstrate only a smaller number of people, in practise, do.

In theory, rich people’s estates should be inheritance taxed but there are ways around paying. People with legal or tax advisers can limit their liability.

For example, gifts of up to £3,000 in value can be given tax free. This may be possible for (and benefit) a wealthier person giving away collectors items but not a middle income earner passing on the family home.

But commentators say the exchequer could get even more from inheritance tax soon.

Research from investment service provider, Wealth Club, says the number of people paying inheritance could rise by 50% in a decade and £9bn could be yielded by 2029.

“The combination of rising house prices and inflation will push up both the number of families paying inheritance tax and the amount they pay”, said Nicholas Hyett, Investment Manager at Wealth Club.

The IFS goes one further in its new analysis and says around £15bn could be gathered from inheritance tax in a decade’s time.

Who would benefit from inheritance tax cuts?

People who may not think of themselves as wealthy, have come in scope of inheritance tax. These people could benefit as house prices have grown and the recent inflation cycle brought prices up.

Inheritance tax bands have been frozen since 2009 and they’re not due to be revised until 2028 even though most prices haven’t stayed at 2009 levels.

Those who didn’t have a spouse to share tax credits with or who do not wish to pass their estate to a child or grandchild, missing out on the exemptions in the process, are the kinds of people in line to benefit.

Research by the IFS says around half (47%) of the benefit of banning inheritance tax would go to those with estates of £2.1m or more, who represent the top 1% of estates.

That group would benefit from an average tax cut of around £1.1m, IFS figures show. The vast majority (roughly 90%) of estates not paying inheritance tax would not be directly affected by the ban.

Who would not benefit, according to the IFS, are people without assets. By the time inheritances arrive, the think tanks says, wealth inequalities are already well entrenched and hard to undo.

In other words, unless you already have rich parents, inheritance tax isn’t much good to you.

The question of whether binning this policy is designed to benefit people like Rishi Sunak, who are wealthy, depends on what the tax is replaced with, or not.

Why might it be in line for the scrap heap?

Inheritance tax is widely disliked.

Despite the data showing less than 4% of estates end up paying the levy, the public believe they’ll be affected, according to YouGov polling done for The Times.

Nearly a third (31%) of survey participants thought their assets will be valuable enough to pay inheritance tax and 15% thought they themselves would have to pay the tax on things they inherit.

Just 5% said the threshold for inheritance tax was £1m.

That’s not to mention the objections of politicians. It’s not the first time the Conservatives have tried to scrap the toll. Not three months have passed since the last time Tories flew this particular policy kite.

Labour in recent days have been staunch in their opposition to getting rid of inheritance tax but only because it is an unfunded tax cut.

Even left leaning think tank, the Resolution Foundation, and the IFS, want the tax gone.

Alternatives

Both the Resolution Foundation and the IFS have ideas about what should fill its place.

For its part the Resolution Foundation proposes a lifetime allowance for everyone. Each person can inherit up to £125,000 over the course of their life and after that you should pay a tax rate of 20% on what you get for anything up to £500,000, for anything higher than half a million received after the £125,000 cut off, a tax rate of 30% should be applied.

Gifts and assets transferred between spouses should be exempt, the foundation proposes.

The financial benefits would better than inheritance tax as it currently stands, according to analysis the think tank has done: £5bn more could be collected a year, compared to the amount gathered in the 2020 to 2021 year. That would equate to tax revenues of £11bn.

Another positive, the Resolution Foundation says, is everyone has a lifetime benefit and so wealth is more likely to be spread around, among families for instance.

A further option, proposed by the Wealth Club, is to keep the tax as is but just raise the points at which you’re taxed in line with inflation.

Either way, voters are unlikely to hear an announcement on the tax future until Sunak’s Tory Party conference speech in early October or the government’s autumn statement in November.

Sources have told Sky News that, despite reports, no changes will be made this year.

Business

Bank of England warns of ‘sharp correction’ for markets if AI bubble bursts

Published

12 hours ago

October 8, 2025

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Bank of England warns of 'sharp correction' for markets if AI bubble bursts

The Bank of England sees trouble ahead for global financial markets if investors U-turn on the prospects for artificial intelligence (AI) ahead.

The Bank‘s Financial Policy Committee said in its latest update on the state of the financial system that there was also a risk of a market correction through intensifying worries about US central bank independence.

“The risk of a sharp market correction has increased,” it warned, while adding that the risk of “spillovers” to these shores from such a shock was “material”.

Money latest: ‘I want to create the Nike of lingerie’

Fears have been growing that the AI-driven stock market rally in the United States is unsustainable, and there are signs that a growing number of investors are rushing to hedge against any correction.

This was seen early on Wednesday when the spot gold price surpassed the $4,000 per ounce level for the first time.

Analysts point to upward pressure from a global economic slowdown driven by the US trade war, the continuing US government shutdown and worries about the sustainability of US government debt.

The political crisis in France has also been cited as a reason for recent gold shifts.

Money has also left the US dollar since Donald Trump moved to place his supporters at the heart of the US central bank, repeatedly threatening to fire its chair for failing to cut interest rates to support the economy.

Jay Powell’s term at the Federal Reserve ends next spring but the White House, while moving to nominate his replacement, has already shifted the voting power and is looking to fire one rate-setter, Lisa Cook, for alleged mortgage fraud.

She is fighting that move in the courts.

Financial markets fear that monetary policy will no longer be independent of the federal government.

“A sudden or significant change in perceptions of Federal Reserve credibility could result in a sharp repricing of US dollar assets, including in US sovereign debt markets, with the potential for increased volatility, risk premia and global spillovers,” the Bank of England said.

British government borrowing costs are closely correlated with US Treasury yields and both are currently elevated, near multi-year highs in some cases.

It’s presenting Chancellor Rachel Reeves with a headache as she prepares the ground for November’s budget, with the higher yields reflecting investor concerns over high borrowing and debt levels.

On AI, the Bank said that 30% of the US S&P 500’s valuation was made up by the five largest companies, the greatest concentration in 50 years.

Share valuations based on past earnings were the most stretched since the dotcom bubble 25 years ago, though looked less so based on investors’ expectations for future profits.

A recent report from the Massachusetts Institute of Technology found that 95% of businesses that had integrated AI into their operations had yet to see any return on their investment.

“This, when combined with increasing concentration within market indices, leaves markets particularly exposed should expectations around the impact of AI become less optimistic,” the statement said.

Business

Gold smashes past $4,000 per ounce but there is good reason to be worried

Published

17 hours ago

October 8, 2025

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Gold smashes past ,000 per ounce but there is good reason to be worried

An extraordinary milestone was achieved overnight for the price of gold.

The spot gold price topped $4,000 an ounce for the first time on record – and futures data suggests no let up in its upwards momentum for the rest of 2025.

It was trading at $4,035 early on Wednesday morning.

Money latest: ‘I want to create the Nike of lingerie’

It has risen steadily since Trump 2.0 began in January, when it stood at a level around $2,600.

Sky News was quick to report on the early reasons for a spike in the price when heavy outflows were witnessed at the Bank of England.

Gold has traditionally been seen as a safe haven for investors’ money in tough times.

There has been plenty to worry about this year – not all of it down to Donald Trump.

Analysts say the surge during 2025 can be partly explained as a hedge against the US trade war and the resulting slowdown in the global economy, which has hit demand for many traditional growth-linked stocks and the dollar.

Wider economic and geopolitical uncertainty, such as the tensions in the Middle East and concerns about the sustainability of US government debt levels, have also been at play.

Over this week, the political crisis in France and the implications of the continuing US government shutdown have been driving forces.

But there is one other, crucial, factor that has entered the equation, particularly since the end of the summer.

Many analysts say that gold has become a collective hedge against the possible implosion of the AI-driven boom for technology stocks in the US.

Despite a few wobbles, there have been almost endless headlines around record values for such shares, with most investment seen as a big bet on the future rather than current earnings.

Around 35% of the market capitalisation of the S&P 500 Index trades at more than 10 times sales, according to investment firm GQG.

AI leaders such as Nvidia and companies investing big in their capabilities see huge rewards ahead in terms of both productivity and profits.

But a recent report from the Massachusetts Institute of Technology found that 95% of businesses that had integrated AI into their operations had yet to see any return on their investment.

Ahmad Assiri, research strategist at the spread betting provider Pepperstone, said gold’s $4,000 level would test appetite but the outlook remained positive for now, given all the global risks still at play.

“Selling gold at this stage has become a high-risk endeavour for one simple reason, conviction.

“Institutions, central banks and retail investors alike now treat dips as a buying opportunity rather than a sign of exhaustion. One only needs to recall the $3,000 level just six months ago, reached amid the tariff headlines, to understand how sentiment has shifted.

“This collective behaviour has created a self-reinforcing cycle where every pause in momentum is met with renewed buying.

“Gold has evolved from a traditional hedge during uncertainty into what could be described as a conviction trade, an asset whose value transcends price, reflecting deeper doubts about policy credibility and the erratic course of fiscal decision-making.”

It all suggests there is good reason for momentum behind this gold rush and that more stock market investors could soon be running for them there hills.

Business

It’s now almost impossible to work your way to riches, says report into growing wealth gap

Published

22 hours ago

October 8, 2025

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It's now almost impossible to work your way to riches, says report into growing wealth gap

Britain’s wealth gap is growing and it’s now practically impossible for a typical worker to save enough to become rich, according to a report.

Analysis by The Resolution Foundation, a left-leaning think tank, found it would take average earners 52 years to accrue savings that would take them from the middle to the top of wealth distribution.

The total needed would be around £1.3m, and assumes they save almost all of their income.

Wealth gaps are “entrenched”, it said, meaning who your parents are – and what assets they may have – is becoming more important to your living standards than how hard you work.

While the UK’s wealth has “expanded dramatically over recent decades”, it’s been mainly fuelled by periods of low interest rates and increases in asset worth – not wage growth or buying new property.

Citing figures from the Office for National Statistics (ONS) Wealth And Assets Survey, the think tank found household wealth reached £17trn in 2020-22, with £5.5trn (32%) held in property and £8.2trn (48%) in pensions.

The report said: “As a result, Britain’s wealth reached a new peak of nearly 7.5 times GDP by 2020-22, up from around three times GDP in the mid-1980s.

“Yet, despite this remarkable increase in the overall stock of wealth, relative wealth inequality – measured by the share of wealth held by the richest households – has remained broadly stable since the 1980s, with the richest tenth of households consistently owning around half of all wealth.”

According to the think tank, this trend has worsened intergenerational inequality.

It said the wealth gap between people in their early 30s and people in their early 60s has more than doubled between 2006-08 and 2020-22 – from £135,000 to £310,000, in real cash terms.

Regional inequality remains an issue, with median average wealth per adult higher in London and the South East.

Could wealth tax be the answer?

The report comes seven weeks before Rachel Reeves delivers her budget on 26 November, having batted away calls earlier this year for a wealth tax.

Former Labour leader Lord Kinnock is among those to have called for one, in an interview with Sky News.

But speaking to Bloomberg last month, Ms Reeves said: “We already have taxes on wealthy people – I don’t think we need a standalone wealth tax.”

Previous government policies targeting Britain’s richest, notably a move to grab billions from non-doms, has led to concerns about an exodus of wealth. The prime minister has denied too many are leaving the capital.

Molly Broome, senior economist at the Resolution Foundation, said any wealth taxes would not just be paid by the country’s richest citizens.

She said: “With property and pensions now representing 80% of the growing bulk of household wealth, we need to be honest that higher wealth taxes are likely to fall on pensioners, southern homeowners or their families, rather than just being paid by the super-rich.”