Tax systems to be at heart of General Election discussions

The inheritance tax (IHT) system in the UK is likely to be an ‘area of focus’ as the country gears up towards a December General Election, according to AJ Bell.

At present, the standard IHT rate is 40%, which is only charged on the part of a state that is above the threshold – currently set at £325,000. While the Conservatives are intending to review their current IHT policies, Labour has proposed plans that would completely reshape the system.

AJ Bell personal finance analyst, Laura Suter, commented: “The most-hated tax in Britain has not escaped either party’s notice, with Labour pledging to scrap the current inheritance tax system and instead cap the amount everyone can receive in inheritance across their lifetime at £125,000. Any gifts received above this would be taxed at income tax rates, in a revenue-raising move.

“New Chancellor Sajid Javid has already said he is a fan of simplified taxes, and as the Government has already commissioned the Office for Tax Simplification to carry out a review of IHT simplification, it seems a likely area of focus. Among the OTS’ suggestions are scrapping the seven-year taper, simplifying the annual gifting allowances into one, and scrapping certain other allowances.”

With Labour pledging to use income tax rates to raise revenues from the IHT system, AJ Bell has suggested income tax is another area set to provide hotly contested debate in the coming months.

Commenting on the income tax system, Suter added: “Boris Johnson pledged a number of changes to personal finances in his campaign to be elected prime minister.

“The biggest move would be hiking the point at which the 40% income tax rate kicks in, from £50,000 to £80,000 – a 60% hike. The move would affect around 4 million people, and the highest earners in that group would get an extra £2,500 in their back pocket each year.

“Labour also announced plans in its 2017 manifesto to change the income tax system, but in the other direction. John McDonnell wants to bring more people into the 45% tax bracket, reducing the threshold at which you start paying it from £150,000 down to £80,000.

“He would then introduce a 50% tax rate for those earning over £123,000, in a move that could raise billions for the public purse, but cost the highest earners the most.”

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