26 September 2023
The odds of significant tax cuts being announced in the forthcoming Autumn Statement appear slim given the chancellor has recently badged it as “virtually impossible”. Instead, the residents of Downing Street seem to be more focused on building financial headroom in the short-term for potential giveaways in the Spring Budget and subsequent manifesto pledges.
A key policy that is reportedly under serious consideration is the abolition of inheritance tax (IHT), alongside the possible scrapping of the northern leg of HS2. The latter move would presumably go some way in repairing the dent left by scrapping IHT in the Treasury’s coffers for at least a few years. Based on the latest statistics published by HMRC, we estimate that IHT revenues will rise to a little over £7.8bn in the year to 31 March 2024, up from a little under £7.1bn for the year before.
Political supporters of consigning IHT to the history books apparently expect it to be a hit with voters in the South of England. With house price inflation being a key driver behind the increase in IHT revenues in recent years, that seems a fair assumption to make given the historical increases in property prices in that area. But what does the data tell us?
For statistical comparison purposes, let us take the South of England to mean the South West, South East, London and the East of England. Those with a fear of venturing past the Watford Gap might consider everything beyond that to represent the North. Any Midlander would no doubt be offended by that definition but for simplicity we’ll assume every other region in England represents the North.
Having split the country in two, one can look at previous regional IHT statistics published. According to that data, 16,030 of the total estimated 22,197 estates in England that were subject to IHT were in the South in the year to 31 March 2021, representing over 72%.
Based on those statistics, it should be no surprise that the South accounts for the majority of the IHT revenue in the year to 31 March 2021, around 77.5% in England and a little under 64% of all UK IHT.
Taking our estimate of IHT revenues rising to £7.8bn by the end of the current financial year and applying these percentage splits, we estimate that Southern based estates will benefit by nearly £5bn from scrapping IHT. By comparison, Northern estates will see a benefit of around £1.45bn.
Given the rumours around scrapping the HS2 Northern leg and IHT are circling at the same time, the prime minister may find it difficult to disassociate the two. The statistics bear out the widely held assumption that the benefit of abolishing IHT is heavily weighted towards the South of England.