On 7 May, 2015 UK citizens will be hitting the polls to decide on the 56th Parliament of the United Kingdom. While there are many issues to consider, The costs of Elections is one that we are seeing pop up more as the election moves closer. In the 2010 election the Conservatives promised to increase the IHT threshold in their manifesto to £1 million. However they were unable to win majority and entered into a coalition government with the Liberal Democrats. The Liberal Democrats opposed the cuts to IHT to help in the recession and the threshold was frozen at the current £325,000 to help pay for elderly care.
It is fair to mention that those that are most likely to vote are the older and ageing population. 75% of those aged 65+ turned out in 2010 compared to only 52% of those 18-24 years, according to the British Election Study. This older population are thinking or will need to consider how the inheritance tax will affect their loved ones after they pass. This issue appeals to them and should be considered when voting.
So what is each party’s plans for the threshold?
The Conservatives
In their 2010 manifesto, they planned to increase the IHT threshold to £1 million but was stopped in the coalition government. The Prime Minister, David Cameron has already made a clear statement that his plans to increase the IHT threshold to £1 million is at the top of his list for 2015. The plan is not clear whether the £1m would be for individuals or married or civil partners, which could mean up to a £2 million threshold.
Labour Party
While the Labour party has not made a statement on IHT, they proposed plans for a “death tax”, a compulsory 15% levy to pay for elderly care in the 2010 election. The policy has been heavily criticised and has since been denied by Shadow Chancellor Ed Balls that it is not the agenda for the Labour party for 2015.
Liberal Democrats
The Lib Dems originally blocked the conservatives from increasing the IHT threshold in 2010 in order to help pull the UK out of a recession. In 2015, we can expect them to further oppose any increase of IHT.
The Green Party
In their 2010 manifesto, the Green Party wanted to reform inheritance tax by basing the tax on the recipient, rather than on the deceased. The idea was to encourage people planning for inheritance to distribute their wealth across a number of recipients.
For 2015, the plan for IHT is “to prevent the accumulation of wealth and power by a privileged class”. Sticking with the recipient basis approach, they propose a banded tax rate, with those at the lower income tax band will be exempt.
UK Independence Party (UKIP)
UKIP states they plan to completely abolish inheritance tax, saying that “The super-rich avoid it, while modest property owners get caught by it.” UKIP obviously feels the wealthy have found ways around IHT and completely avoid it, while many are getting caught by the tax that it was not intended for and is worth scrapping all together.
The BPR Industry and the 56th Parliament
Business Property Releif (BPR) is a statutory relief available on investments in unquoted businesses and their assets that gives 100% relief on IHT. In recent years we have seen a number of IHT planning products enter the market to help investors obtain the relief.
How the government will choose to change IHT may be a big issue and could mean significant changes with the BPR industry.
If the threshold increases:
If the threshold increases, we certainly will see less estates being caught by IHT. However, if they feel they are missing out on receipts then the government may choose to pull back some of the relief.
Many investors that previously needed BPR products will no longer need them. BPR has been criticised for not being used in its original intended spirit, so this may come under fire if they see the super wealthy escaping large tax bills.
Taxpayers may be pleased that they can avoid this tax, but less will be invested UK small businesses, which have most likely had the best benefits in recent years of the increased investment levels – especially since banks have been reluctant to lend.
If the threshold stays the same:
With the threshold frozen at £325,000, we may see this stay the same or even only a small increase after the election. Obviously the BPR investment industry would benefit as house and asset prices continue to increase and the baby boomers begin to plan for the future.
UK small and medium sized businesses will continue to benefit, as more people will require the use of BPR to avoid IHT.
If it is abolished:
Often seen a immoral tax, some countries such as Australia and New Zealand have already done away with the tax and others are significantly higher, like the US at $5.34 million (£3.5 million). However the income received from IHT bills does help pay for home care after the £75,000 cap. Funding would have to found from other sources, such as increasing income tax, or even increasing the cap on elderly care. BPR would no longer be needed and many may be left with investments that may be difficult to exit.
Broken Promises
Inheritance Tax has been the focus of many political moves to try and gain voter support. over the past fifteen years, here have been some of the poor attempts to change IHT:
- October 1991 – Prime Minister John Major proposed to abolish IHT at a Conservative Party Conference
- 1995- John Major was challenged on his promise by Tony Blair but replied “when it is appropriate and we can afford to do so”
- 2006 – Labour MP Stephen Byers wrote in the Sunday Telegraph that IHT should be abolished and was the question was raised in later by Peter Bone at Treasury Questions
- 2006 – Again in the Treasury Questions, Martin Linton enquired with the Chief Secretary if there was a case to link the tax threshold to housing prices. The response was ““a link to house prices in each area would be very difficult and complex to administer, and I think that it would also be unfair … I think that there would be a real problem if estates with no residential properties but otherwise identical paid different amounts of tax in different parts of the country”
- 2007 – Conservative Party Shadow Chancellor announced the party’s intention to increase the nil rate band from £300,000 to £1m
- 2010 – During the General Election the conservative party retained their £1m threshold promise