To ask Her Majesty’s Government what assessment they have made of (1) the amount of inheritance tax paid, and (2) the measures being taken to avoid paying any such tax; and what plans they have, if any, to ensure that inheritance tax is paid promptly.
The Question was considered in a Virtual Proceeding via video call.
My Lords, from our latest estimates, inheritance tax receipts for 2019-20 totalled £5.1 billion. HMRC has a duty to collect the correct taxes as laid down by Parliament, and it carries out compliance checks into inheritance tax returns to ensure that customers pay the right amount. Inheritance tax is payable within six months of the date of death and must be paid before probate is granted and the assets in the deceased’s estate are distributed.
My Lords, I thank the Minister for her reply. She refers to the UK’s total annual £5 billion inheritance tax, which is paid only by the wealthy and the middle-class, who have less ability and wealth to avoid death duties by imaginative and creative tax plans. Virtually no IHT is paid by the very wealthy in the UK. Tax planning is sensible, tax evasion is illegal, but creative tax avoidance is also unacceptable. The Office of Tax Simplification was asked to review the tax. Can the Minister tell us about its recommendations and the Government’s response to them, in particular on how to curb the creative tax industry and those who use it?
My Lords, the Government thank the Office of Tax Simplification for the work it has done; they are looking at the results of its two reports very carefully. I reassure the noble Lord that since 2011, inheritance tax and trusts have been brought into the disclosure of tax avoidance schemes—DOTAS—regime, which means that any new and innovative inheritance tax avoidance scheme involving transfers into trust must be disclosed to HMRC, and gives the Government powers to take any enforcement actions necessary.
My Lords, as the noble Lord, Lord Palmer, said, the very wealthiest are just not paying their share of inheritance tax. In 2016, estates worth £2 million to £3 million paid only 20% rather than the 40% required. Estates worth over £10 million paid on average just 10%. With Exchequer revenue to be at a premium in the years ahead, will the Government urgently examine the closure of the myriad loopholes available to the very wealthiest; for example, through the extensive use of transfers to trust?
My Lords, I point out that in 2018-19, inheritance tax receipts were at a record high, and 70% of inheritance tax comes from estates valued at £1 million or more. I believe that the noble Lord is referring to certain exemptions that come under agricultural and business property. While we recognise that there are some concerns, the policy intention behind those exemptions is to allow family farms and businesses to be passed on without having to be broken up to pay inheritance tax. We think that that is an important aim.
The APPG on Inheritance and Intergenerational Fairness has recommended replacing inheritance tax with a 10% flat rate gift tax payable on both lifetime and death transfers. Would that not be a good way of getting rid of this hated tax with its complex exemptions and avoidance, and potentially bring forward economic demand benefits?
My Lords, the Government keep the tax system under review and any changes made are taken in consideration of economic competitiveness, levelling up growth across the UK and their impact on individuals and businesses. However, I am not aware of any active consideration of the APPG’s proposals.
My Lords, IHT is an iniquitous tax and the noble Lords, Lord Palmer and Lord Wood, have a point, although full disclosure of any schemes has to be made in box K of IHT 100. Will my noble friend the Minister consider taking a look at the two major loopholes? The first is the definition of “business” within BPR and the second is the exemption for non-doms of non-UK assets?
My Lords, under the definition of businesses, certain criteria must be met in order to qualify for the exemption. It is restricted to trading businesses which provide goods and services and is not available to those dealing either wholly or mainly with securities, stocks, shares or land.
Does my noble friend agree that we are well overdue for a transformation of our tax system across the piece? We need a public debate led by the Government on this. Only after that could we truly say who should pay and how they should pay it. Will she take this suggestion back to the department and then report to the House how such a public discourse could be undertaken?
Changes have been made to inheritance tax in recent years; notably, that from 2017, implementation of the residential non-rateable band, which allows families who have built up an asset, usually the family home, to pass it on to their direct descendants. As I said in a previous answer, we keep the tax system under review; for example, we have considered and continue to consider carefully reports from the Office of Tax Simplification.
My Lords, as my noble friend Lord Wood made clear, wealth inequality in the UK is even greater than income inequality. As the Government consider how to pay for the current coronavirus crisis, will the Minister commit to the principle of fairer taxation of both income and wealth to ensure that those with the broadest shoulders genuinely bear the biggest burden?
The Government are committed to a fair taxation system. We recognise that the current pandemic will have an impact on public borrowing and we will need to look at the sustainability of our public finances in the future. Our immediate focus is on providing financial support now for those who have been hit by the pandemic and on supporting jobs and livelihoods while we are in the period of social distancing and other coronavirus-related restrictions.
My Lords, I fully support IHT being paid when it should, but I also support the campaign against excessive and burdensome bereavement bureaucracy being run by the charity Cruse Bereavement Care and the Times. In that context, can the Minister explain and justify why HMRC obliges the completion of onerous IHT forms in certain circumstances, even if the sole beneficiary is a spouse who is exempt from paying the tax? If she cannot answer me now, will she commit to reviewing this issue?
I pay tribute to the noble Baroness for her campaigning in this area. I reassure her that the Government have recently implemented an online service for inheritance tax where excepted estates can provide assured accounts to HMRC through a simple online portal. We will continue to consider ways of making the payment of tax more simple; for example, during the pandemic we have recognised that the provision of wet signatures may not be possible so we have introduced the acceptance of e-signatures in their place.
My Lords, does not the current crisis and its impact on the wider tax take offer us the ideal opportunity to reform inheritance tax by abolishing it and treating inheritance as income under the Income Tax Acts, with an added tax-free allowance or threshold? This would increase the tax take, substantially widen the recipient base, make for a far more equitable distribution of wealth, and foster entrepreneurship on potentially a huge scale. Why not seize this opportunity while we have it?
My Lords, as I have said, we will look at the public finances and how we can put them on to a sustainable footing after this crisis, but during this crisis our focus is on getting support to households now. We have made a number of changes to the inheritance tax system recently, including the Office of Tax Simplification report, and we will continue to keep all these aspects under review.
My Lords, Australia abolished federal inheritance tax in 1979. Following that, by 1984 all estate duties, state and federal, were removed nationally. Have the Government assessed the pros and cons of systems used by other countries in this inheritance tax issue and, if not, will they commit to doing so? These answers may cover many of the points raised by other noble Lords in this Question.
The Government often look at systems in other countries to see what can be learned from them. In the UK, the Government think that inheritance tax makes an important contribution to the Exchequer, while balancing the importance of allowing those who have worked hard and built up an asset that they want to pass on the ability to do so.