Could inheritance tax (IHT) really be reduced to 10%?
31st July 2026
Posted in Articles by Andrew Marr
The issue
The Labour Government is not known for being sympathetic to the wealthy, but a few wealthy families will be raising their collective eyebrows at Burnham’s recent gambit. Apparently, he is considering replacing IHT with a flat 10% ‘social care tax’ on all assets left on death. The details are sketchy, but the concept is an interesting one.
Currently (ignoring business reliefs) a married couple can pass on up to £1m of assets IHT-free on second death. This is made up of two nil rate bands of £325,000 each and (possibly) two residence nil rate bands of £175,000. The new proposal would presumably mean that £100,000 would be payable on the second death.
A married couple with £5m would currently end up with an IHT bill of £1.6m on second death, but this would perhaps be reduced to £500,000 under Burnham’s proposal.
Should the wealthy be popping the champagne?
This is all somewhat ‘pie in the sky’ at the moment and so nothing more than cautious optimism is appropriate. Furthermore, with a ‘low’ 10% rate it is possible/likely that many of the normal business reliefs would go if the 10% flat-rate were to be introduced.
Consider a couple who own a trading company worth £5m. With their current £2.5m 100% Business Property Relief (BPR) allowances each, they can hope to pass that company on free of IHT. Under Burnham’s proposal there may be £500,000 of IHT due.
Next, consider a couple who own a trading company worth £10m. With the current £2.5m 100% Business Property Relief (BPR) band and 50% BPR thereafter, they expect to pass the company on with an IHT bill of £1m. Under Burnham’s proposal there may also be £1m of IHT due. Therefore, couples with business assets over £10m would still be better off under Burnham’s regime.
Forbes Dawson view
This could be anything from hot air to a touch of genius on Burnham’s part. Although the message would need careful handling because he could (uncharacteristically) be seen as robbing the poor to pay the rich, an IHT relaxation may be the much-needed salve for wealthy tax-payers who are leaving the UK in droves. Perhaps they will be more likely to stomach increased income tax and capital gains tax rates if the prospect of a 40% IHT hit can be reduced to a more palatable 10%. It is, after all, the most hated tax. Furthermore, Burnham is probably mindful that a lowly 10% rate may disincentivise wealthy people to engage in complicated IHT planning and he may think that the less wealthy would not do this anyway. With careful messaging he could reverse the exodus from the UK of valuable taxpayers and increase the overall tax-take with a tax cut.
