Inheritance Tax is Punitive and Unfair, says Cabinet Minister

Undated image of a key with house key chain and sticky note. (Vitalii Vodolazskyi/Shutterstock)

Inheritance tax is “punitive and unfair,” government minister Grant Shapps has said, amid reports the prime minister is considering cutting death duties.

Mr. Shapps made the comments to Sky News amid reports by the Sunday Times that Prime Minister Rishi Sunak is considering controversial plans to slash the tax.

The cabinet minister said it is a question of “aspiration” for many people.

Inheritance tax is levied at 40 percent, but the vast majority of estates fall below the threshold—which can be up to £1 million for a couple—to incur the charge.

Just 3.73 percent of UK deaths resulted in an inheritance tax (IHT) charge for the tax year 2020 to 2021.

He said that as someone who has lost a parent recently, he understands why people may feel inheritance tax is “particularly punitive.”

Mr. Shapps’s father Tony died at the age of 91 earlier this month.

However, he said Chancellor Jeremy Hunt is in a “fiscal straitjacket” after only stating last week that “he doesn’t see room for tax cuts.”

“You will certainly have to wait for a budget or another event for the government to set out whatever the plans will be,” Mr. Shapps said.

“Generically I’m in favour of all taxes being lower, but we’ve got to be fiscally responsible.”

“Unfortunately, I just lost a parent and I can understand entirely why people find inheritance tax particularly punitive.

“However, there are lots of different tax considerations for the chancellor.”

Economy Threat

Former Prime Minister Liz Truss was among those calling for inheritance tax to be axed and there has been pressure within the Tory Party to change or scrap the rules. But the move would not be universally popular within Tory ranks.

Former cabinet minister Sir Simon Clarke said, “If we are choosing our priorities for tax cuts, income tax should surely trump inheritance tax every time.”

While under 4 percent of UK estates pay IHT, “the great majority of those in work pay income tax,” he said.

“I understand why IHT is inherently resented, but at a time when we face profound problems of inter-generational unfairness—especially on housing—we should focus our ability to ease the burden on rewarding the value of work,” Sir Simon told the Next Gen Tories podcast.

Labour’s shadow Treasury chief secretary Darren Jones told the newspaper: “A year ago Liz Truss trashed the economy with unfunded tax cuts. Now Rishi Sunak is doing what Liz Truss wants.

“Abolishing inheritance tax—which 96 percent of people never pay—is an unfunded tax cut of £7.2 billion per year. The biggest threat to the economy is the Conservative Party.”

He says he has written to the chancellor demanding answers on how any change might be paid for.

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Pension Lock

Separately, Downing Street seems set on fighting the next election with a pledge to keep the pension “triple lock.”

Mr. Sunak has decided to commit to the policy even though experts believe it could add up to £45 billion a year to the welfare bill by 2050.

Despite the expense, private polling has found that voters’ reaction to the idea of axing the policy has been so negative that Tory strategists have ruled out any changes.

The lock ensures that pensions rise along with inflation, earnings or 2.5 percent—whichever is higher.

Plans to tackle the problem of funding social care for the elderly have also been ditched, for fear of repeating the “dementia tax” fiasco which derailed Theresa May’s 2017 election campaign.

A government spokesman said on Monday: “We are committed to the triple lock. As is the usual process, the Secretary of State [for Work and Pensions, Mel Stride] will conduct his statutory annual review of benefits and state pensions in the autumn, using the most recent data available, and we won’t pre-empt that.”

The spokesperson added, “We don’t comment on speculation around future manifesto commitments.”