The UK has one of the highest rates of inheritance tax (IHT) in major world economies, more than three times the global average, with the threshold of £325,000 ten times greater than the US where the federal estate tax only kicks in for estates worth over £3m report Harris & Co accountants Northampton
The latest research calculates that someone passing on assets worth £1.8m to their heirs would pay 25.8% of the estate in taxes in the UK and 26% in Ireland, compared to a global average of 7.67%.
In the UK, the IHT threshold has been frozen at £325,000 since 6 April 2009, not far above the UK average house price of £250,000. By contrast, in the US the 40% federal estate tax applies only to estates worth over $5.34m (£3.33m).
European countries generally levy the highest inheritance taxes, with EU countries taking 14% tax on the inheritance of a £1.8m property. However, on a lower value property worth £210,000, the rate is broadly comparable, with European countries charging on average 2.5% in inheritance or estate tax, compared to a global average of 1.9%.
There has never been IHT in China, India and Russia, while Australia, Israel and New Zealand have all abolished inheritance taxes to encourage the creation of wealth, whether through investment or entrepreneurship.
‘But it would be simpler and more effective by far for the Treasury to scrap the tax altogether or at least to increase the threshold at which it is paid in a meaningful way, something that David Cameron has been dropping heavy hints about.’
Last week the Prime Minister David Cameron hinted at plans to increase the IHT threshold in the next manifesto.
He told delegates at a Saga conference:
‘Inheritance tax should only really be paid by the rich, it shouldn"t be paid by those people who have worked hard and saved and brought a family house.’
It is likely that the Conservatives will include IHT in their manifesto with a pledge to raise the threshold to £1m, something that the Liberal Democrats refused to accept as part of the coalition agreement in 2010.