What is inheritance tax and why might the Conservative Party be scrapping it?

No 10 is said to be considering abolishing inheritance tax (PA Archive)
No 10 is said to be considering abolishing inheritance tax (PA Archive)

Jeremy Hunt is considering cutting inheritance tax in his Autumn Statement, a move that could face potential criticism if it coincides with a planned benefit cutback.

A former treasury advisor has said that the “coast is clear” for the chancellor to cut the tax as part of the statement on Wednesday.

Mr Hunt has stressed that his “main message is that we should be more positive about our prospects”.

While he has not committed to the measure, Mr Hunt is thought to be favouring the move - even if it might not potentially impact on many of the population.

This is all you need to know.

What is inheritance tax?

This is a policy that sees a person pay tax on money or possessions they inherit from someone who has died.

Inheritance tax is paid on money, property, and possessions somebody leaves after they pass away, and is known as someone’s ‘estate’.

Is inheritance tax paid on everything and how much is it?

Inheritance tax is only paid when a person’s estate is worth £325,000, or more.

Everything above that threshold is taxed at 40 per cent, but you still get the first £325,000 tax-free.

As Jack Kessler writes, fewer than 4 per cent of estates are liable to pay it, because it only begins to apply to assets over £325,000. In reality, exemption thresholds allow many couples to pass on up to £1m tax-free.

However, there are some instances where the threshold changes. If you are married, you can pass on the home without paying the tax, and the surviving partner also “inherits” their late partner’s tax-free threshold.

The surviving person will be able to leave £650,000 without any tax being paid on it.

If a person leaves a home to a child or a grandchild, the inheritance rate tax threshold also rises from £325,000 to £500,000.

Charities are also exempt from inheritance tax.

It is estimated that around £7 billion is raised annually through inheritance tax.

What are the Conservative Party’s plans for inheritance tax?

Jeremy Hunt refused to rule out scrapping inheritance tax in a BBC News interview.

Former Treasury boss Lord Macpherson has suggested that the political benefits of easing this levy may outweigh the economic costs.

The peer tweeted that inheritance tax is a tax which raises around £7 billion but that “many mistakenly think they will pay it. Hence the political return from cutting it is higher than the cost”.

Previously, the government were said to be discussing scrapping inheritance tax but indications were that it would likely be a “manifesto pledge” rather than a set-in-stone policy about to be implemented.

How much money is raised through inheritance tax?

About £7bn is raised each year through inheritance tax. This money is spent on public services.

Why would the Tories want to axe inheritance tax?

At present, the Conservatives are said to be behind Labour in the polls and they will be looking for ways to boost their votes.

The Independent reported how insiders in the Conservative Party believe the move could be a “gamechanger” in the south of England, where the Tories will be defending constituencies vulnerable to gains from opposition parties.