Government minister says inheritance tax is ‘deeply unfair’ as Sunak ‘plans to scrap’ levy

Rishi Sunak is said to be preparing to announce a cut in the levy – or even scrap it altogether

Chancellor Jeremy Hunt says tax cuts are not possible until the economy improves (PA)

One of Rishi Sunak’s cabinet ministers has branded inheritance tax “deeply unfair” and “punitive” amid claims that the government is considering cutting the levy.

Downing Street has so far sought to play down reports that the prime minister is drawing up plans to slash the tax, which is paid on estates worth over £325,000 with a higher threshold for homes that are passed on to direct descendants (such as children or grandchildren).

Discussions are said to be taking place at the highest level of government about reforms to the levy, according to The Sunday Times – despite a warning given by the chancellor, Jeremy Hunt, last week that there would be no headroom for tax cuts.

One proposal under consideration is said to be a cut in the 40 per cent rate payable on the amount by which an estate exceeds the threshold, while setting out a pathway to abolish the tax completely in future years.

Asked about the discussions, cabinet minister Grant Shapps told Sky News: “I think it’s a question, for many people, of aspiration, and people know that there’s something deeply unfair about being taxed all their lives and then being taxed in death as well.”

The defence secretary said that his colleague, Mr Hunt, is in a “fiscal straitjacket” – hinting that it is unlikely that November’s autumn statement will contain any immediate changes to the way the tax is administered.

“You will certainly have to wait for a Budget, or another event, for the government to set out whatever the plans will be,” Mr Shapps said. “Generically, I’m in favour of all taxes being lower, but we’ve got to be fiscally responsible.”

The defence secretary said his own father had died in September. He added: “Unfortunately, I just lost a parent, and I can understand entirely why people find inheritance tax particularly punitive. However, there are lots of different tax considerations for the chancellor.”

Downing Street sources pointed to Mr Hunt’s insistence this week that tax cuts are “virtually impossible” at the moment given the state of the public finances. However, a senior government source told The Sunday Times: “No 10 political advisers have been looking at abolishing inheritance tax as something that might go in the manifesto. It’s not something we can afford to do yet.”

The vast majority of estates fall below the inheritance tax threshold, which can be as high as £1 million for a couple. The latest figures, for the tax year 2020-2021, showed that just 3.73 per cent of UK deaths resulted in inheritance tax being payable.

Prime Minister Rishi Sunak is reportedly drawing up plans to cut inheritance tax (PA Wire)

Some Conservatives want to scrap the levy, including former prime minister Liz Truss. But Labour questioned how such a move would be paid for, and whether it would be fair.

Shadow Treasury chief secretary Darren Jones said: “A year ago, Liz Truss trashed the economy with unfunded tax cuts. Now Rishi Sunak is doing what Liz Truss wants. Abolishing inheritance tax – which 96 per cent of people never pay – is an unfunded tax cut of £7.2bn per year. The biggest threat to the economy is the Conservative Party.”

Mr Jones has written to the chancellor demanding answers on how any change might be funded.

This week Mr Hunt told LBC’s Tonight with Andrew Marr programme that the state of the economy “makes tax cuts virtually impossible”, adding: “It means that I will have another set of frankly very difficult decisions.

“All I would say is, if we do want those long-term debt costs to come down, then we need to really stick to this plan to get inflation down, get interest rates down. I don’t know when that’s going to happen. But I don’t think it’s going to happen before the autumn statement on 22 November, alas.”