A small number of the wealthiest families in the country are sharing up to £666 million a year in inheritance tax relief, a report by Tax Justice UK has found. Under current rules large amounts of agricultural and business property are exempt from inheritance tax, costing the government almost £1 billion a year in total.
The report estimates that almost 80% (£458 million) of the total £595m of business property relief given in 2015/16 went to just 234 families. For agricultural property, assets worth more than £1m shared a tax saving of £208m between just 261 families, representing two-thirds of the overall relief.
The data – retrieved from HMRC via Freedom of Information Act requests – also states that the very richest 51 families received an average tax saving on business property of £6.4m per estate. But Tax Justice UK said: “It is likely these figures are an underestimate as they do not include any agricultural or business property held in trust.”
“Wealth inequality is at staggeringly high levels and this report shows how it is in part underpinned by inheritance tax reliefs,” said Tax Justice UK Executive Director, Robert Palmer. “There is no justification for politicians allowing costly tax breaks to continue to operate this way.”
A review of inheritance tax by the Office for Tax Simplification is due to report shortly and Palmer called for a cap on inheritance tax relief.
“Clearly action is needed. We would like to see a cap on the amount of relief available. Tax breaks like these, that unfairly benefit the already wealthy, need to be reined in if the public is to have confidence in the inheritance tax system as a whole,” he said.
“Fair taxes on wealth must be part of the solution to properly funding the NHS, schools and other public services we all deserve,” Palmer added.
“Something out of nothing”
However, Louise Somerset, partner in the private client services at Smith & Williamson said that Tax Justice UK were “making something out of nothing”.
She argued that the majority of families who receive these inheritance tax reliefs were relatively small family businesses who needed that relief to allow the business to stay in the family.
“Family businesses, whether farming or otherwise which are covered by the reliefs are able to pass on from one generation to another without having to be carved up,” she said. “It is enabling people to continue running businesses without having to sell them on the death of an owner.”
“If you think about farming being a family business which it is, agricultural relief enables you to keep it within the family. That is probably a good thing,” Somerset added, “as is business property relief which enables all trading businesses to remain intact.”
Somerset added that while agricultural relief was not without its problems, it was a fair system that treated farmers equally.“Whether you have got ten acres or ten thousand acres, the same principle applies”.
“These are very good reliefs. They have good objectives at their heart.”