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There has been much talk about tax of late, especially in the run up to next week’s Autumn Statement. Coming as it does just over a year after the ‘dramatic’ Kwasi Kwarteng mini-budget, is Jeremy Hunt going to take this opportunity to make a grand gesture, or will it be a bit of a damp squib, saving the good stuff for a pre-election Budget?

Of course, as a Private Client tax expert, I have been particularly interested in the swirling rumours around inheritance tax (IHT), wealth taxes and non-doms, and many of my clients are asking me to don my Mystic Meg headscarf and predict not only the outcome of the election, but also the likely tax effects of any change in Government. But what are the rumours, what has actually been said, and what is our best guess of the outcome? Note- no refunds given for incorrect psychic readings!

First up is inheritance tax with a number of reports suggesting that the Conservatives are looking at ‘reducing’ IHT, with a view to ‘abolishing’ it in the future. While this would certainly appeal to their core voters, is this really an achievable pledge or is it simply manifesto fodder?

In fact, IHT has become more and more valuable to the Treasury over recent years, with the 12 months to July 2023 raising £1bn more in tax than the 12 months prior to that, helped by the seemingly eternal freezing of the nil rate band. Furthermore, the Office of Budget Responsibility figures predict the total take will reach £8.4bn- and 1% of the country’s total tax take- by 2027/28. And, hated though it is, is IHT really unfair? Currently only 4% of households pay IHT, and the top 10% of those needing to pay make up the vast majority of that tax take. So while abolition would mean no-one would pay no IHT, it is the very wealthiest who would come out even richer. So is abolishing IHT, despite its status as ‘most hated tax’ on the cards? Unlikely.

However, there are things that any governing party could do, both to ease the IHT burden on some, and to feed this little cash cow. Politicians like to use words in a context entirely subject to their own interpretation, and ‘abolition’ could be spun into ‘abolition for most people’. By increasing the nil rate band, this would remove most people from an IHT charge, and by far the simplest way to achieve this would be to combine the nil rate band of £325,000 and the residence nil rate band of £175,000 into a single 0% allowance of £500,000. This has a double benefit- not only would this mean that literally only millionaires would pay IHT (and who could possibly object to that?!) but also the residence portion of the nil rate band is currently only available in full to those with estates (broadly) under £2m. While a tapering could be retained, in the aims of simplicity, that would be a nice little sweetener for some.

Another option could be to abolish the seven year rule- which means you never have to pay any IHT at all so long as you can predict your date of death and exact spending in the interim period- which would prevent the wealthy from divesting themselves of valuable surplus assets prior to death.

However, businesses may be the ones who suffer the sharp end of the stick. Currently trading businesses can often get relief from IHT at up to 100%, the premise behind these reliefs being to prevent family businesses needing to be sold or wound up in order to meet tax bills. But removing the relief for lifetime transfers could improve revenues, although this could further exacerbate the tax disincentive to hand over the reins to a younger generation who have the appetite and energy to grow the business further.

Another suggestion, put forward by the Institute for Fiscal Studies in their Green Budget in July would be to cap the IHT relief for businesses at £500,000 per person, although they also identify that ‘most’ business wealth is concentrated at higher values so this would cost little in terms of tax loss, and gain significant sums of tax.

Labour have been reticent on their opinions on IHT, and given the fact that scrapping the tax would cost a pretty penny and benefit those with the most to pass on, perhaps IHT would be safer in Labour’s hands than the conservatives. Labour shadow Chancellor Rachel Reeves also ruled out the introduction of a wealth tax in a recent interview, a contentious issue which has had mixed results in Europe.

But where Labour have been vocal is in their determination to scrap the non-dom system of taxation that allows people living in the UK to escape UK taxation on some elements of their income/gains. This is a key element of their pre-election manifesto and is expected to raise £3.2bn per annum (note, less than half of the IHT take), but could this actually be damaging to the UK economy?

While non-doms are another ‘hated’ group, whipped up by media hounds, is what they are doing so wrong? Profits and earnings generated in the UK will be subject to UK tax, it is only income and gains from abroad, that remain abroad and that are not brought into the UK to spend here that escape UK taxation. Is this really so unfair? And given today’s globally mobile world, particularly with the very wealthy, would we rather they were paying some tax in the UK rather than heading off to the UAE to pay no tax at all? In our business we deal with a number of global executives and overseas entrepreneurs who come to the UK to invest and work because they can ‘protect’ their non-UK assets. If they were not able to do so, they will simply go elsewhere. With their money and investment.

So are we expecting great things from the Autumn Statement? Given Jeremey Hunt’s assertion that tax cuts are currently ‘virtually impossible’, the short answer is no, but we may have to wait and see whether any headline-grabbing announcements are made in the Spring. Let’s just hope all this uncertainty doesn’t stifle the economic growth we have all been promised…

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