Some of the UK’s richest families are using inheritance tax loopholes to pass on billions of pounds every year tax-free. We uncovered this through Freedom of Information requests to HMRC.
In 2022 alone, 275 super rich families passed on assets worth £2 billion to the next generation without paying inheritance tax, or paying a much reduced rate.
Each of these families passed on assets worth over £2.5 million with reduced or no tax. Collectively, they saved around £700m in inheritance tax.
How they do it
Agricultural land and businesses benefit from generous tax loopholes when they’re passed from one generation to the next.
This inheritance tax loophole is an attempt by the government to avoid breaking up family farms and businesses when they’re passed to the next generation.
However, the loophole is being exploited by some of the richest families in the UK to pass on their fortunes with reduced tax.
Many super rich families – with no real connection to farming – are increasingly buying farmland in order to exploit this loophole.
The scale is huge
When you look at the data over several years, the amount of assets exempted under this loophole really mount up.
A total of £18.4bn of assets were handed on to the next generation either tax free, or with lower inheritance tax, because of this loophole between 2017 and 2022.
This will have resulted in billions of pounds of lost tax revenue. Money that could have been spent on hospitals, schools, roads or any number of other things.
What do we do about it
We’ve been campaigning for a clampdown on inheritance tax loopholes – and other tax loopholes – for several years; in the media and with politicians.
We’ve identified 5 tax loopholes that, if closed, could generate £5 billion a year in extra tax revenue.
The next step is for the government and HMRC to comprehensively review our tax system and the tax loopholes in it.
£200 billion a year
Overall tax loopholes cost the exchequer around £200 billion every year – that’s £200bn that would otherwise be collected in tax if the exemptions didn’t exist.
These tax loopholes are used by the government to try to encourage certain activities or types of investments – so they’re not necessarily all bad.
But there’s a huge problem. HMRC is given a miniscule budget of just £600,000 a year to run assessments to measure whether these tax loopholes are achieving their objectives or not.
We are campaigning for the government to properly assess these loopholes, close many of them and also better police and enforce ones that remain.
If the government had a better idea of which tax loopholes were working, and which could be scrapped, we could free up billions of pounds for investment.
A lot more must be invested in HMRC to do this job effectively.