Government is urged to scrap 'arbitrary' inheritance tax system

Newsletter issue – April 2026

The Institute of Economic Affairs (IEA) is urging the UK government to abolish inheritance tax (IHT), calling it 'arbitrary, complex and distortionary.' Nearly half of OECD countries do not tax inheritances passed to adult children, making the UK a relative outlier.

IHT currently charges 40% on estates above £325,000, or £500,000 when a main residence is passed to children.

The IEA argues the tax penalises wealth that has already been taxed through income tax, NI, and VAT. It discourages investment and entrepreneurship and creates unnecessary administrative burdens (it costs the government £66m annually just to collect). It says even a cautious government could raise the tax-free threshold, reduce the 40% rate and simplify gifting rules.

The government recently faced backlash from farmers after attempting to remove tax breaks for family farms. Following protests, ministers reversed course and raised the agricultural assets threshold to £2.5m. So, it remains to be seen if further changes to the IHT system will be made.