In preparation for the upcoming Autumn Statement, sources reveal that Prime Minister Rishi Sunak and Chancellor Jeremy Hunt have been exploring plans to reduce the inheritance tax (IHT) rate from its current 40%, as reported by The Telegraph.
This development follows months of downplaying expectations regarding tax cuts. Treasury officials have assessed that such a move would not contribute to inflation, a crucial criterion set by Jeremy Hunt for tax reductions this autumn.
On a related note, it was confirmed on Wednesday that Sunak had successfully fulfilled his promise to halve inflation for the year, one of the five priorities he outlined in a speech earlier this year. Cutting the inheritance tax rate is anticipated to receive a warm welcome from Conservative backbenchers who have been advocating for tax cuts to stimulate economic growth. Some have even hinted at withholding support for the Autumn Statement if it includes tax hikes.
The final decision regarding the reduction of inheritance tax and the extent of the cut will be made by Rishi Sunak and Jeremy Hunt next week, with the release of the Office of Budget Responsibility figures that will indicate the available funds. While discussions had hinted at a delay until the spring Budget, insiders suggest that the policy is now “likely” to be announced on November 22nd.
Economists at JP Morgan estimate that Jeremy Hunt could potentially cut taxes by as much as £10 billion. The Telegraph has been actively campaigning to abolish inheritance tax, which has often been criticized as the “least popular tax in Britain” and seen as a form of double taxation.
Inheritance tax is levied on the portion of an individual’s estate exceeding the tax-free threshold, currently set at £325,000. This threshold can increase to £500,000 if a person transfers their home to their children or grandchildren. Transferring a home to a spouse is exempt from inheritance tax. A 10-percentage-point reduction in the current 40% inheritance tax rate would come at a cost of a few billion pounds, potentially affordable within Jeremy Hunt’s available budget while still aligning with his debt reduction target within five years.
Sunak is likely to frame this tax cut as evidence of his commitment to lowering taxes and attribute it to his prudent fiscal management since assuming office in October. The Office for National Statistics reports a decrease in inflation from 10.7% in January to 4.6% in October. Sunak reiterated his intention to further reduce inflation, emphasising the need to bring it down to 2%.
During a session in the House of Commons, when pressed by a fellow Conservative MP to lower higher income tax bands, Rishi Sunak expressed his shared ambition to reduce taxes for working individuals as the economy improves. He stated:
“As we stabilize the economy, that’s something that both the Chancellor and I are keen to deliver.”