Labour could pay a high price for targeting Inheritance Tax - David Alexander

There will be many pensioners who may be thinking that they are the only group in society who is to be financially targeted by the new Labour government. First it was the winter fuel duty cut for nearly ten million, then it was the potential removal of the single person council tax subsidy, and now the threat of changes to Inheritance Tax (IHT).

It seems that those who have saved, who have bought a property, and who have chosen to accumulate some wealth may be the target of further pain in next month’s Budget. Inheritance tax is already a tax on thrift, on hard work, and on saving yet politicians have consistently seen it as an easy cash grab.

This is because you can’t hide your house, its value is determined by sale price, and your estate is public knowledge so avoiding this most regressive of taxes is almost impossible. IHT currently impacts most upon those with estates just above the £325,000 threshold and up to a few million. Had IHT risen in line with inflation it would now be at £502,433.

​The IHT threshold is already higher than the average price of a property in Edinburgh (Picture: stock.adobe.com)

The people with enormous wealth, with huge assets in property and investments, will never pay the full amount of IHT because they have advisers who will ensure they won’t need to.

The Labour government claims that it will be this group that they will be targeting in any changes to IHT rather than those who have simply accumulated wealth through home ownership or the steady accrual of assets through a lifetime of work and saving.

You have to ask though, how will they succeed in this endeavour when all previous governments have failed? The advisers are very clever, and very well paid, and are generally one or two steps ahead of government.

As successive governments have brought many thousands more ordinary people into the IHT threshold it is those with more modest estates who will experience the most financial pain. The impact of fiscal drag in freezing the threshold at £325,000 from 2009 until 2022 has meant that the annual tax take has more than trebled from £2.38 billion to £7.5bn in 13 years.

David J Alexander is CEO of DJ Alexander Scotland Ltd (Picture: Laurence Winram)

The Institute for Fiscal Studies has said that the proportion of estates hit by inheritance tax was likely to rise from 4.39 per cent in 2021-22 to seven per cent by 2032-33. Over the same period, government revenues from the tax will double from £7.5bn to £15bn. Clearly more people are being drawn into this tax simply from owning a property which has gone up in value rather than being excessively wealthy.

The IHT threshold is already higher than the current average price of a property in Edinburgh and the average cost of all new build properties in Scotland is currently just £21,000 below this level

It can’t be right that a homeowner who wishes to pass on something to the next generation should be punished for owning a home which has simply increased in value over decades. Taxing thrift, savings, and aspiration should never be government policy. Taxing consumption makes more sense as that is about choice. Next month’s Budget needs to tread softly if it is not to anger millions of homeowners for years to come.

David J Alexander is CEO of DJ Alexander Scotland Ltd