Budget prediction: NO IHT changes and I'll tell you why...

In its report, published last week, the Office of Tax Simplification (OTS) said:

"On the basis of the low number of estates caught by IHT and the useful but relatively low revenues [after reliefs] that it raises, we consider that a more appropriate approach may be to review the whole of IHT rather than to consider individual IHT reliefs. Such a review may also encompass a review of capital gains tax and we envisage this as a longer term project."

I am surprised that anyone could use this statement as the basis for predicting that:

"Inheritance tax squeeze expected in budget"

That was however the Guardian's online headline on Sunday in a piece that heavily quotes Danny Cox, head of advice at the independent financial adviser Hargreaves Lansdown.

In fact, at para 2.33 of the OTS report, they state that the review they are suggesting:

"a proper review of inheritance tax, whether by HMRC, HM Treasury or the OTS....would clearly be a longer term project."

What do I think?

I doubt anyone in HMRC, let alone the Government, Treasury or OTS has the time to "review the whole of IHT" in the near future. The OTS were tasked with reviewing tax reliefs and this included those available when computing liabilities to IHT. This is the only reason why they make reference to it. There is no agenda to review IHT or to increase the tax generated by IHT.

IHT is expected to generate about £2.3 billion tax this year. A large sum in itself but this comes from only around 12,000 estates out of the 560,000 adult deaths (these are both 2009 figures). So just 1 in every 46 deaths gives rise to IHT. And the main reliefs from IHT do not have a significant impact on the amount of tax collected.

Back in 2007, when in opposition, George Osborne talked about raising the IHT threshold to £1m. The objective being that:

“only millionaires pay death duties”

It really is all but inconceivable that, now he is Chancellor, Mr Osborne would suddenly decide to change the rules and attempt to increase the take from IHT. It would take such an about-turn that he would get very dizzy!