Rishi Sunak is reportedly considering an inheritance tax cut as he attempts to woo voters and create dividing lines with Labour, which is comfortably ahead in the polls.
The plans would make way for the eventual scrapping of the levy, the Sunday Times has reported. However, Downing Street has sought to play down speculation that the prime minister was drawing up plans to cut the tax.
At present, inheritance tax is charged at 40% for estates worth more than £325,000, with an extra £175,000 allowance towards a main residence if it is passed to children or grandchildren. A married couple can share their allowance, which means parents can pass on £1m to their children without any tax to pay.
The publication cited three sources who have said there is a “live discussion” at the highest level of government about reform of the levy.
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Among the proposals under consideration is for Sunak to reduce the 40% rate in the budget in March, paving the way to abolish it in future years, the paper said.
A senior government source said: “No 10 political advisers have been looking at abolishing inheritance tax as something that might go in the manifesto. It’s not something we can afford to do yet.”
They added that it was the “most hated tax” in Britain, according to polls. “It’s the most hated tax at every income [level],” said the source. “People also feel it is just wrong to tax people on income that has already been taxed – and at a time when they are grieving.”
The latest figures, for the tax year 2020-21, showed only 3.73% of UK deaths resulted in an inheritance tax charge.
The Labour MP and shadow chief secretary to the Treasury, Darren Jones, said: “A year ago Liz Truss trashed the economy with unfunded tax cuts. Now Rishi Sunak is doing what Liz Truss wants. Abolishing inheritance tax – which 96% of people never pay – is an unfunded tax cut of £7.2bn per year. The biggest threat to the economy is the Conservative party.”
Downing Street sources insisted that formal plans were not being drawn up and pointed to the chancellor Jeremy Hunt’s insistence that tax cuts were “virtually impossible” given the state of the public finances.
Meanwhile, Sunak will pledge to keep the pension “triple lock” as he fights the next election, according to the Mail on Sunday,
The triple lock increases pensions each April by whatever is the highest out of three factors: average wage growth, inflation or 2.5%.
There had been discussions about ditching the guarantee in the next manifesto, but Sunak has been told it would be “political suicide” to abandon it, said the paper, despite spiralling costs.
Under the current system, the full-rate state pension is £203.85 a week. This rose by 10.1% this year, and is due to increase to £221.20 next year.
The Mail on Sunday reported that voters’ reaction to the potential dumping of the policy was so negative that Tory strategists have vetoed any changes.
One source told the publication that while the rise in wages and inflation had made it a “very expensive measure”, the political cost of scrapping it would be “suicidal”.
