‘Inheritance Tax Premier League’: is reform on the cards?

Mon Oct 17 2022News

Kingsley Napley have undertaken a detailed analysis of recent tax data

An ‘Inheritance Tax Premier League’ table, prepared by leading law firm Kingsley Napley, has ranked where people pay the most inheritance tax (IHT) by local authority. The firm has analysed the latest available HMRC statistics (for tax year 2019-20).

With Liz Truss’s home borough of Greenwich barely making the top 100 of local authorities’ contributions to government coffers for inheritance tax, IHT may not be high on her neighbours’ agendas, but according to James Ward, head of private client at Kingsley Napley LLP, residents in other boroughs would be foolish to wish for the abolition of IHT any time soon.

Kensington and Chelsea topped the table for average value of IHT paid (see table 1 below) and Barnet once more leads by volume of estates hit by IHT (see table 2). It was revealed eight of the ten highest paying localities for IHT are in London and the South East, with Newcastle and Suffolk being the only exceptions (table 1).

Currently, the IHT threshold is £325,000, meaning people who inherit estates over this amount are required to pay tax at 40 per cent. The total IHT take for the tax year 2019-20 was £5.2bn. For the financial year 2021-22, the total was £6.1bn.

During her leadership bid in the summer, Truss promised a review of inheritance tax if she became prime minister. One of the major donors to Truss’s campaign, treasury minister Andrew Spencer, even called for the tax to be completely scrapped earlier this month (October). However, given property prices are falling, and new chancellor Jeremy Hunt has warned some taxes may need to go up, there is now a chance IHT reform may be in his sights to achieve the same tax take or increase it in future.

“Decades of house price growth across the UK have taken more and more estates into the threshold for IHT, with London and the South East paying 47% of IHT receipts according to the latest available figures. But any proposal to eliminate IHT at this point in the economic cycle would surely be as unpopular and unwise as the 45p income tax fiasco,” said Ward.

“Whether the new Chancellor decides to tamper with the current regime or not, those whose estates will be liable for IHT should double down on their planning.

“At least with IHT it’s a case of better the devil you know. Many of the clients I speak to take the view that abolishing it entirely would only enhance the prospect of a wealth tax under an incoming Labour Government. IHT remains a tax where planning is possible to mitigate liabilities due,” added Ward.

The firm said it sees a steady stream of enquiries from those who want to take legitimate steps to reduce their inheritance tax liabilities. Such steps might include:

Capital gifting: sizeable transfers seven years before death;
Income gifting: Regular contributions to grandchildren’s school fees or an offspring’s mortgage for example;
Exemptions: Using all nil rate bands. Business relief in particular can lead to big savings;
Life insurance: Arranging for this to be paid out to family members (so letting the insurance pay the tax);
Skiing: Spending the Kids Inheritance.

Ward concluded: "Those living in IHT hotspots should strongly consider all of these steps and more to avoid ranking at the top of our Inheritance Tax Premier League in future. It is always wise to have a regular review of estates and inheritance plans to ensure tax-efficiency in the event of death but especially now given the current political and economic environment.”

Table 1: Rank by Value of IHT Estates – 2019/20 tax year (with 2018/19 table for comparison)

2019/20 Rank	Area	Number	Amount £m	Average £k
1	Kensington and Chelsea	142	155	1,092
2	Westminster	141	97	688
3	Camden	163	98	601
4	Islington	88	35	398
5	Hammersmith & Fulham	120	47	392
6	Chichester	141	49	348
7	Barnet	302	104	344
8	Basingstoke & Dean	72	23	319
9	Newcastle upon Tyne	54	17	315
10	Suffolk Coastal	83	26	313
11	Three Rivers	79	24	304
12	South Oxfordshire	121	35	289
13	Wandsworth	180	51	283
14	Babergh	53	15	283
15	Oxford	86	24	279
16	Windsor & Maidenhead	151	42	278
17	Cotswold	69	19	275
18	Epsom & Ewell	62	17	274
19	Haringey	133	36	271
20	Elmbridge	174	46	264
2018/19 Rank	Area	Number	Amount £m	Average £k
1	Kensington and Chelsea	144	154	1,069.4
2	Westminster	159	130	817.6
3	Camden	145	64	441.4
4	Stratford-on-Avon	79	34	430.4
5	South Oxfordshire	106	39	367.9
6	Babergh	44	16	363.6
7	Winchester	104	37	355.8
8	West Devon	35	12	342.9
9	Hammersmith and Fulham	104	35	336.5
10	Test Valley	52	17	326.9
11	Hertsmere	100	32	320.0
12	Waverley	139	44	316.5
13	Chichester	109	33	302.8
14	Kingston upon Thames	159	47	295.6
15	West Dorset	95	28	294.7
16	Barnet	316	92	291.1
17	Wandsworth	176	51	289.8
18	South Bucks	107	31	289.7
19	Islington	80	23	287.5
20	Merton	150	41	273.3

Table 2: Rank by Number of IHT Estates – 2019/20 tax year (with 2018/19 table for comparison)

2019/20 Rank	Area	Number	Amount £m	Average £k
1	Barnet	302	104	344
2	Bromley	271	52	192
3	City of Edinburgh	228	44	193
4	Wiltshire	210	46	219
5	Cornwall	193	27	140
6	Croydon	183	26	142
7	Wandsworth	180	51	283
8	Cheshire East	179	31	173
9	Brighton & Hove	176	32	182
10	Elmbridge	174	46	264
11	Ealing	173	37	214
12	Camden	163	98	601
13	Leeds	156	26	167
14	Birmingham	156	23	147
15	Hillingdon	152	22	145
16	Windsor & Maidenhead	151	42	278
17	Redbridge	150	24	160
18	Harrow	146	32	219
19	Waverley	143	35	245
20	Kensington and Chelsea	142	155	1092
2018/19 Rank	Area	Number	Amount £m	Average £k
1	Barnet	316	92	291.1
2	Wiltshire	261	60	229.9
3	City of Edinburgh	254	54	212.6
4	Bromley	249	52	208.8
5	Cornwall	245	49	200.0
6	Elmbridge	197	49	248.7
7	Richmond upon Thames	191	47	246.1
8	Wandsworth	176	51	289.8
9	Ealing	173	32	185.0
10	Croydon	169	29	171.6
11	Cheshire East	165	30	181.8
12	Westminster	159	130	817.6
13	Kingston upon Thames	159	47	295.6
14	Bristol, City of	159	25	157.2
15	Enfield	159	24	150.9
16	Merton	150	41	273.3
17	Brighton and Hove	149	27	181.2
18	Birmingham	148	31	209.5
19	Camden	145	64	441.4
20	Kensington and Chelsea	144	154	1,069.4