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< Back to all posts 26 September 2024

Inheritance tax breaks give billions to the UK’s wealthiest families 

PRESS RELEASE

This release was updated on 27 September as the previous information supplied by HMRC wasn’t clear. The figures TJ-UK requested were for the total value of tax relief provided. HMRC have been in touch to clarify that the figures they shared were for the total value of the underlying agricultural and business property that received tax relief, and not for the amount of tax saved. 

27 September,  London – The government is giving some of the wealthiest families in the country over a billion pounds in inheritance tax breaks every year, according to data uncovered by Tax Justice UK. Closing down tax loopholes – which the wealthiest people and companies use to reduce the amount of tax they owe – could raise significant funds. It would give the government money to invest in the struggling services we all rely on like the NHS, schools and public infrastructure. Meanwhile, the Chancellor would be able to keep the Labour party’s promise to keep taxes on ordinary working people flat.

The research shows that in 2022 just 275 families benefited from tax breaks on £2bn of agricultural and business assets handed on to the next generation. Each family received a tax break on property worth at least £2.5m, potentially resulting in tax savings of approximately £700m pounds in total. The data is based on responses to Freedom of Information requests to HMRC.

Robert Palmer, Executive Director at Tax Justice UK said:

“Under the guise of protecting small family farms and businesses, the country’s wealthiest families are able to use inheritance tax breaks to pass their fortunes onto the next generation. There is no justification for this, particularly when people are struggling to afford the basics and key services like the NHS and councils are crying out for funding. The tax system needs urgent reform to ensure the super-rich and wealthiest companies pay their fare share and the economy gets the investment it needs.”

The value of inheritance tax breaks has increased since Tax Justice UK exposed the problem in 2019 in the report In Stark Relief. According to HMRC figures on the cost of tax reliefs, in 2019/20 the total cost of agricultural and business property reliefs was £1bn. This is now due to grow to a total cost of £1.6bn in 2023/24. The total revenue from inheritance tax was £6bn in 2021/22, and is due to rise to almost £10bn in 2029.

Key figures include:

  • Between 2017 and 2022 a total of £18.4bn of agricultural and business assets were handed on to the next generation either tax free or benefiting from low tax rates due to tax reliefs
  • £9.3bn or 51% of the £18.4bn total was given away to families receiving tax relief on property worth at least £2.5m
  • In the 2021/2022 financial year – the last with data available – just 275 families benefited from a collective tax break on £2bn of assets, saving approximately £700m.

This is part of a larger problem that means that the wealthiest families can largely avoid paying inheritance tax. The bad design of inheritance tax, including that the richest families usually pay very little, exacerbates public dislike of inheritance tax as the think tank Demos has shown.

To fix this, Tax Justice UK – alongside leading think tanks – argue that the government should place limits on the value of agricultural and business relief that can be claimed, as already happens in most other countries. According to the Institute for Fiscal Studies, limiting both agricultural and property reliefs to £500,000 per estate would raise £1.4 billion in 2024-25, rising to £1.8 billion in 2029–30. The government should also end the practice that shares listed on the alternative AIM market can be passed on free of inheritance tax.

Kristina Johansson, Member of Patriotic Millionaires UK said:

“It is unjust and wrong that the tax system disproportionately benefits the wealthiest people in the UK, particularly when passing on great fortunes to the next generation. Instead of neglecting the unfair tax breaks the very richest families currently benefit from, the chancellor should ensure that wealthy people pay what is fair and right. Billions could be raised every year from a small number of very rich people, like me, to invest in a fairer economy: one where everyone benefits from a better NHS and well funded public services. Failing to do so allows so much wealth to be unfairly concentrated and left unproductive while the country falls apart.”

Tax Justice UK has set out ten further tax reforms that could raise £60bn a year.

[Ends]

Notes to editors

  1. For further information, comment, or to arrange an interview, please contact Jake Woodier, Tax Justice UK Deputy Director: Communications, on 07503 789994 or jake@taxjustice.uk
  2. Tax Justice UK is a campaigning and advocacy organisation. Our mission is to ensure that everyone in the UK benefits from a fair and effective tax system. We are not-for-profit and politically non-aligned. Tax Justice UK is a partner of (but independent from) the Tax Justice Network.
  3. The figures quoted in this release are from two Freedom of Information Act requests made to HMRC in July and August 2024. The full responses from HMRC are available here and here.
  4. Agricultural property relief reduces inheritance tax on agricultural property at a rate of up to 100%, while business property relief reduces tax on business property and shares by between 50% and 100%. AIM listed shares are currently exempt from paying inheritance tax.
  5. The value of reliefs handed out vary year to year. It’s likely that these figures are an underestimate as they do not include agricultural or business property held in trust.
  6. The maximum tax savings on the £2bn in property transferred by the richest families would be up to £800m, worked out by applying the 40% inheritance tax rate to the £2bn in property passed on. However, HMRC has told us that it isn’t possible to accurately calculate the amount of tax saved by the wealthiest families given that some assets will be partially sheltered by the Nil Rate Band and some will attract a lower tax relief of 50%. Deducting the Nil Rate Band received by each of the 275 families, and making some allowance for some assets attracting the lower 50% rate, brings an approximate total of £700m in tax saved.