Shadow Chancellor John McDonnell was in the news last week as he confirmed that Labour is considering proposals for a radical review of the inheritance tax system. In this article we look past the media hype to what lies behind the headlines …
Interviewed by Sky News recently, John McDonnell admitted Labour was looking at replacing inheritance tax with a Lifetime Gifts Tax saying, “We are looking at it…it might be one of those ideas and we are consulting on it …” So where are these ideas coming from?
“Land for the Many”
The idea has been triggered by a report “Land for the Many” which was published in June having been commissioned by Labour. The full report sets out a far reaching and quite radical approach to the way that land is owned and controlled.
Taxation is just one small aspect of the report which includes proposals to improve transparency over the ownership of land, measures to stabilise house prices and the introduction of a Common Ground Trust to take land into public ownership. Other proposals include changes to the buy to let market including introducing open ended tenancies, further regulation of the mortgage market and changes to the approach to farm land and agricultural property.
Inheritance tax only gets a paragraph or two with suggestions for the following also in the report:
- Replace council tax with a progressive property tax
- Phase out stamp duty for home owners
- Increase capital gains tax on second homes and investment properties
- Tax offshore property ownership
- Replace business rates with a land value tax
- And… replace inheritance tax with a lifetime gifts tax the effect of which might be to tax gifts in excess of £125,000 at income tax rates.
This proposal was actually put forward by the Resolution Foundation in their report in May 2018 “Passing On – Options for Reforming Inheritance Taxation” and is supported by the IPPR Commission on Economic Justice report, “A Wealth of Difference”.
So this is actually old news. But what grabbed the headline was the admission that the introduction of a Lifetime Gifts Tax could take a long time so in the interim, it might be a good idea to reverse the recently introduced extra main residence nil rate band – uproar ensued!
We are a long way from any changes and a general election to get past first. The Resolution Foundation suggest that a move to a lifetime gifts tax could increase IHT receipts to £15bn in 2020/21 from the current £9.27bn but none of the reports have considered the practical application of these changes. As a result, they do not take into account whether HMRC have the resources to plan, implement, monitor and manage this level of change. We have our doubts.
We will continue to keep you abreast of further developments as these recommendations are scrutinised but for now our focus will remain on what the current government propose.