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| 1 minute read

IFS calls on the government to scrap or cap fundamental IHT reliefs to raise revenue

The Institute for Fiscal Studies published an article last week which highlighted three IHT reliefs it believes should be targeted to make IHT “fairer” and raise revenues. First in their sights is Business Property Relief (BPR) on AIM listed shares. Whilst this aspect of BPR doesn't sit with the general rationale that BPR stops family businesses from having to sell up on death, getting rid of this relief might have wider implications for AIM more generally. I'm no investment adviser, but I imagine that if there is no IHT incentive, investment in the AIM market may well decline significantly.

Secondly, the IFS states that there is “strong economic case for completely abolishing agricultural and business reliefs” and, failing that, they suggest capping the reliefs at £500k. This arbitrary figure would mean that successful family businesses/farms are penalised (and families are potentially forced to sell in order for meet the IHT bill) but those below the limit wouldn't be. This may raise more revenue but, arguably, isn't a way to support farming, encourage business and grow an entrepreneurial Britain. 

Finally, the IFS proposes “ending the tax-free passing on of pension pots” and instead bringing pensions within the IHT net. In a world where the government is trying to encourage people to save for their retirement so we don't have an increasingly aging population relying on the State, to my mind, it seems counter-intuitive to remove one of the tax incentives of saving.

In my view, whilst these proposals might give a short-term revenue bump, they don't sit very well with the wider messages about supporting a growing, thriving economy or encouraging people to save for their futures but this isn't something the IFS article considers…

According the IFS "these reliefs and exemptions are unfair, have substantial revenue costs, and inappropriately distort economic choices."


private client, personal tax