Jeremy Hunt plans stealth raid on UK inheritance tax in autumn statement

0

Jeremy Hunt plans stealth raid on inheritance tax in Autumn statement as part of Chancellor’s bid to raise around £54billion through tax hikes and spending cuts to plug a hole in British public finances.

Government officials have said Hunt is drawing up plans to extend the ‘zero band’ freeze on inheritance tax from 2025-26 to 2027-28, a move that would raise at least half a billion pounds for the treasure.

The plan is part of a larger strategy to use “tax braketo surreptitiously raise the funds needed to restore order to public finances when Hunt delivers his fall statement on Nov. 17.

With inflation high, Hunt plans to keep tax exemption thresholds at the same level for various levies, including those on income, pensions and capital gains, to increase state tax traffic by billions of dollars. books through the backdoor.

The move will hit mainstream Tory voters, but Hunt and Rishi Sunak, the prime minister, have insisted those with “the broadest shoulders” must pay more.

Treasury insiders say Hunt is eyeing a fiscal contraction of around £54billion in a bid to reduce debt as a share of national income in the fifth year of the forecast period. This would include a ‘margin’ – or margin of error – of up to £10bn.

Meanwhile, the government has scrapped plans to build a £250million ‘national lighthouse’ – dubbed ‘HMS Brexit’ – which was to lead to trade deals around the world.

The suspension of the state-funded project, touted as a successor to the Royal Yacht Britannia but derided by critics, is the first major spending cut ahead of next week’s announcements.

However, Sunak has decided not to raise bank taxes sharply, according to people briefed on preparations for the fall statement, sticking to the plans he initially set out as chancellor last year.

Hunt has already reinstated Sunak’s plan to raise corporate tax rates to 25% next April. The administration of Liz Truss had proposed to stick to the current rate of 19%.

Before Sunak became prime minister, Hunt kept the current 8% “bank surcharge” on the table, which could have seen banks’ effective tax rate rise from 27% to 33% from next April.

Sunak insisted on sticking to the 25% corporate tax rate from next April, but will reduce the bank surcharge from 8% to 3%. This means that the banks will pay an effective rate of 28%, higher than currently.

The Treasury said: “Banks should continue to make a fair and sustainable tax contribution to the public purse, but we recognize the need for the tax system to support our goals for a strong and competitive banking industry.”

Hunt’s fall statement will use “stealth” measures to increase tax levies. The initial freeze on the inheritance tax threshold until 2025-26 was announced in the Spring 2021 budget by Sunak when he was chancellor.

This policy was to raise £1 billion over four years, according to the Treasury at the time. But that figure is now likely to be much higher due to soaring inflation, according to Stuart Adam, senior economist at the Institute for Fiscal Studies think tank.

Extending the threshold freeze for another two years beyond 2025-26 would yield £400-500m if inflation returns to its target level of 2%, according to Adam. If inflation is higher, however, the freeze would bring in more money for the state.

On death, inheritance tax is paid at 40% of the value of the estate on the zero rate bracket – the level at which no tax is paid – which has been set at £325,000 since 2009 and £650,000 for a couple.

In 2017 the government introduced a new ‘£175,000 zero-rate transferable principal residence band’, which applies when a home is left to direct descendants.

If the zero rate band had increased in line with inflation, it would have risen from £325,000 to £428,000 since 2009.

Tax receipts from inheritance tax rose from £2.3billion in 2009 to £6bn in 2021-22 as property prices skyrocketed while the threshold remained the same.

The Treasury said it would not comment until the fall statement.

With just 10 days to go before Hunt rises in the Commons, the Chancellor is preparing a huge fiscal crunch on the same scale as his predecessor George Osborne’s 2010 austerity budget.

The final total for spending cuts has yet to be decided, reflecting daily changes in gilt markets, but is now higher than ministers had expected a fortnight ago.

According to its draft proposals Hunt currently intends to cut public spending by £33billion while raising taxes by around £21billion, officials say, which would entail tough restrictions on departmental spending.

The Chancellor could also break the “triple lockon increases to the state pension, which ensures that pension payments increase with inflation, average earnings or 2.5% each year, whichever is greater. Another controversial option would be to increase benefits based on average earnings rather than inflation.

Hunt warned of “extremely difficult” decisions ahead.

The Chancellor plans to freeze income tax thresholds for another two years until 2027-2028, as well as to increase the tax rate on stock dividends and reduce the tax deduction on income from dividends.

It also examines the case for a reduction in allowances or allowances for capital gains tax, which is paid on shares and second homes.

Hunt is likely to extend the current freeze on the annual CGT exempt amount of £12,300 from 2025-25 to 2027-8.

The Chancellor is set to freeze the Pensions Lifetime Allowance for another two years until 2027-28 at its current rate of £1,073,100.

Share.

Comments are closed.