The Conservatives are said to be discussing scrapping inheritance tax in a bid to win over voters at the next election.
What is the tax, how much do people pay – and who are the Tories hoping to win over if they axe it?
What is inheritance tax?
Inheritance tax is paid on money, property and possessions somebody leaves behind after they die.
These things of value are known as the person’s estate.
Inheritance tax isn’t paid on the whole estate. If a person’s estate is worth less than £325,000, there isn’t any inheritance tax to pay.
If it’s worth more than that, inheritance tax applies and everything above that threshold will be taxed 40% (but you still get the first £325,000 tax-free).
However, there are some instances where the threshold changes.
Married couples
If you are married or in a civil partnership, you can pass on a home to your spouse without paying inheritance tax.
The surviving partner also inherits what’s left of the late partner’s tax-free threshold.
If the first spouse to die did not use any of their threshold, the surviving person will be able to leave £650,000 without any tax being paid on it.
Leaving a home to a child or grandchild
If you give away your home to your children – including adopted, foster or stepchildren – or grandchildren, the inheritance tax threshold rises to £500,000.
Are there any other loopholes?
If you leave everything above your tax-free threshold to a charity or a community amateur sports club, it won’t be subject to inheritance tax.
What about money given away before you die?
Money given away in your lifetime is mostly still considered part of your estate, unless you survive for seven years after giving it.
However, you can give away up to £3,000 a year before you die and it isn’t considered part of your estate, so isn’t liable for tax.
You can also give away payments of up to £250 per person each tax year and they are excluded from inheritance tax.
Wedding gifts are another way to give away money tax-free. You can give £5,000 to a child, £2,500 to a grandchild and £1,000 to anyone else without worrying about inheritance tax.
Does everyone pay inheritance tax?
No. Inheritance tax is only paid on estates that reach the thresholds laid out above.
According to the HMRC, that’s only one in 20 estates.
The Treasury said more than 93% of estates are forecast to have zero inheritance tax liability in the coming years.
How much money is raised through inheritance tax?
About £7bn is raised each year through inheritance tax. This money is spent on public services.
What are the Conservative Party’s plans for inheritance tax?
Conservatives are reportedly discussing scrapping inheritance tax.
But Number 10 has indicated it is not an immediate priority.
It’s “future-scoping speculation”, Number 10 told Sky News, and “requires a different kind of economic environment to the one we’re operating in”.
It could be considered a manifesto pledge rather than a policy to be implemented next year.
Why would the Tories want to axe inheritance tax?
The Conservatives are trailing Labour in opinion polls and are on the lookout for ways to shore up votes.
As Sky News’ chief political correspondent Jon Craig explains: “This is one – potentially – for the manifesto, in a bid to win back those disgruntled Tory voters in the shires and the so-called ‘blue wall’.”
For all the latest business News Click Here
