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Labour is poised to target inheritance tax to raise £4billion for a spending splurge, it was claimed today.
Shadow chancellor Rachel Reeves is looking at building a warchest for an incoming Keir Starmer government by closing tax ‘loopholes’.
Options being examined include ending the IHT exemption for agricultural land, and curbing reliefs on shares in unlisted businesses.
The move could open a clear dividing line with the Tories amid speculation that Rishi Sunak will pledge to cut or even abolish IHT in his election manifesto.
Labour is holding off announcing its proposals until much closer to a poll, amid fears that ministers would either steal or find ways of attacking them.
Questions are increasingly being raised about Sir Keir’s plans for government, with polls consistently showing a double-digit lead for his party.
Shadow chancellor Rachel Reeves (right) is looking at building a warchest for an incoming Keir Starmer (left) government by closing tax ‘loopholes’
The IFS estimates that IHT revenues will surge far more than thought as a proportion of GDP
The revenue raised by IHT has been rising sharply over recent years
The number of estates that end up paying IHT vary hugely across the country, as this IFS chart shows
But shadow frontbenchers have been shying away from fleshing out ideas, insisting that the dire state of the Treasury’s finances mean there is limited room for manoeuvre.
Sir Keir has used the tough fiscal landscape as cover to drop previous flagship pledges such as scrapping tuition fees.
Tony Blair has urged Labour not to get carried away with big ‘tax and spend’ commitments.
The mooted tweaks to IHT, together with scrapping or reducing relief on people selling business assets, would be expected to bring in more than £4billion together.
‘Rachel’s team has built up a war chest of money that can be found by closing down some of the existing loopholes in the tax system that overwhelmingly benefit just a tiny number of people,’ a source told The Times.
‘The big question is when to deploy it.’
Inheritance tax is charged at 40 per cent on estates worth more than £325,000, with an extra £175,000 allowance towards a main residence if it is passed on to children or grandchildren.
A married couple can share their allowance, meaning most parents can pass on £1million to their children without any tax being paid. The figures for the last tax year show just 3.73 per cent of UK deaths resulted in an inheritance tax charge.
However, around a third of people believe that their estate will pass the threshold.
Much of the inheritable wealth in London comes through housing
This IFS chart shows how changes to the treatment of IHT could radically increase how much it brings in for the Treasury
And the revenue raised by IHT has been rising sharply over recent years.
A report this week estimated that the annual amount brought in by IHT will go from £7billion to £15billion over the next decade.
As each generation amasses more wealth, those who inherit will have to pay more to the Treasury, the Institute for Fiscal Studies (IFS) said.
The number of people affected by the tax will also grow.
In a decade, one in eight (12 per cent) are set to have inheritance tax due when either they or their partner dies.
The research suggested that the growth in the size of inheritances will be much stronger than official forecasts suggest, increasing the tax take for the Government.
There is a dramatic variation between different parts of the country. Nearly a quarter of people (23 per cent) in London are in line to pay the tax in a decade – twice the national average and five times higher than in the North East.
The IFS found the wealthiest 1 per cent of society – those with estates of £2.1million or more – would get half the benefit of scrapping inheritance tax, saving them £1million on average.
Next year, the wealthiest fifth of parents will bequeath an average of £380,000 per child, and pay inheritance tax of around 10 per cent of this amount. By contrast, the least wealthy fifth of parents will leave less than £2,000 per child.
The report also found a huge difference in wealth. By the age of 50 to 54, children of the richest fifth of parents have accumulated an average of £830,000, while children of the least wealthy fifth only have an average of £180,000, it said.
There are claims that Downing Street is considering announcing an intention of reducing or even scrapping the duty, potentially for inclusion in the next election manifesto.
In a poll answered by 3,203 This is Money readers, 48 per cent supported abolishing inheritance tax, while 28 per cent said the threshold should be raised and 12 per cent supported cutting the rate. Just 2 per cent said it was fair and should be left alone.
Questions are increasingly being raised about Sir Keir’s plans for government, with polls consistently showing a double-digit lead for his party