The case for a radical IHT overhaul

Britain does not do tax reform. It does tax composting. Layer upon layer, Budget upon Budget, each one dumped on top of the last until the whole system begins to steam ominously and nobody can quite remember what lies beneath.

Inheritance tax may be the ripest heap of all.

For years, politicians have treated IHT as a convenient morality play: a tax on the comfortably deceased, sold as fairness, while quietly catching ever more middle-class families in its net through frozen thresholds and asset inflation.

It raises relatively modest sums, causes disproportionate fury, and remains one of the few taxes capable of making conservatives out of lifelong socialists.

Take pensions. The principle that unused pension wealth should not become an untouchable tax-free family trust is, frankly, understandable. But Britain, with its usual genius for bureaucratic vandalism, risks discouraging the very pension saving it claims to champion.

“Farmers ... understand politics: turn up in wellies, block Whitehall, and suddenly everyone remembers food security”

If people spend 40 years dutifully locking money away only to discover the state looms over it like an undertaker with a calculator, enthusiasm may wane. The answer is not to create yet another inheritance tax labyrinth for pension providers and grieving families to navigate.

Providers themselves could deduct a simpler, clearer levy at source, leaving at least some incentive – a little gravy, if you will – for the families of prudent savers.

Then there is business property relief, where the silence from Britain’s private business lobby has been deafening compared to the tractor-fuelled outrage of farmers defending agricultural property relief. Farmers, to their credit, understand politics: turn up in wellies, block Whitehall, and suddenly everyone remembers food security.

Private business owners, by contrast, have largely watched from the boardroom window. Yet shares in a private company are often vastly harder to sell than a field in Yorkshire. Land can be parcelled off. Minority stakes in family companies can be commercially useless, trapped by illiquidity and control structures.

Existing valuation rules may permit minority discounts in certain cases, but the broader regime remains patchy, technical, and politically neglected.

This is fertile ground for a serious political movement. Reform UK will doubtless thunder against death duties as state theft. Conservatives could position themselves as defenders of aspiration and family enterprise, though their own record of fiscal drag somewhat muddies the sermon.

Labour, meanwhile, tends toward preserving or tightening wealth transfer taxes in the name of redistribution, while the Liberal Democrats and Greens aren’t particularly enamoured by having to wait until the wealthy die before nabbing the lot.

But perhaps the deeper absurdity lies elsewhere. Why, exactly, does Britain wipe away capital gains tax at death before inheritance tax is applied? Under current rules, decades of untaxed gains can vanish with the deceased, only for IHT to take its bite later.

“The broader truth is this: people resent taxing wealth that has often already been taxed multiple times.”

One could make a cleaner case for treating death as a deemed disposal event: tax unrealised gains first, perhaps at a flat ‘death CGT’ rate, then apply estate taxation more rationally – or reduce it accordingly.

The broader truth is this: people resent taxing wealth that has often already been taxed multiple times. Income taxed when earned. Corporation tax before dividends. Stamp duty on purchase. CGT on sale. Then IHT at death. The Treasury may call it comprehensive. To many voters, it looks less like taxation and more like bureaucratic grave robbing.

Inheritance tax reform need not mean abolition. But Britain urgently needs coherence, simplicity, and above all honesty. Otherwise, the taxman will remain what he too often appears: less a steward of public finances, more a patient scavenger waiting politely at the funeral.