Rupert Neate Wealth correspondent 

Inheritance tax loopholes allowing super-rich to pay lower rates

Analysis of payments shows estates worth £10m or more paid an average of 10% tax
  
  

Grosvenor Square in London, owned by the Duke of Westminster.
Grosvenor Square in London, owned by the Duke of Westminster. Photograph: Jonathan Brady/PA

The UK’s super-rich pay half the rate of inheritance tax paid by the merely very rich, according to an analysis of HMRC data that throws fresh focus on how billionaires’ advisers use a “kitbag” of tricks to reduce heirs’ tax bills.

Estates worth £10m or more paid an average of 10% tax to the exchequer in the 2015-16 tax year compared with an average 20% tax paid by estates worth £2m-£3m, according to data released by HMRC following a freedom of information request by asset manager Canada Life.

The law states that estates should pay 40% tax on assets above £325,000 – or above £450,000 if the family home is given to children or grandchildren. But Neil Jones, the market development manager at Canada Life, said the richest of the rich often did not pay anywhere near that rate because they had access to “a myriad of potential solutions in an adviser’s kitbag to help mitigate IHT [inheritance tax]”.

“This difference in the net tax rates paid by estate isn’t always down to the value of the estate or the different type of assets held in an estate,” Jones said. “It’s often about a willingness to plan.”

The heirs of the late sixth Duke of Westminster paid no inheritance tax on the bulk of his £8.3bn family fortune following his death in 2016. Probate records show that Gerald Cavendish Grosvenor, who died aged 64 in August 2016, left a personal estate of £616,418,184 after payment of debts and liabilities.

The rest of his wealth had already been transferred to family trusts which largely passed on to his son Hugh, 28, without incurring inheritance tax. His son also inherited the title, becoming the seventh Duke of Westminster and the world’s 108th richest person with a £9.2bn fortune, according to estimates by Bloomberg Billionaires

The Resolution Foundation thinktank has been campaigning for a radical shakeup of the inheritance tax system to make it fairer for those inheriting smaller sums. Its research director, Laura Gardiner, said the findings showed that “inheritance tax is no longer fit for purpose”.

She said: “Inheritance tax has both a terrible record of raising revenue, despite record levels of wealth across Britain, while still being widely despised, even by people who are never likely to pay it. At the very minimum, there are billions of pounds of worth inheritance tax loopholes that need to be closed. But ultimately we should scrap inheritance tax altogether and replace it with a far fairer lifetime receipts tax [cumulative across a person’s life], which would be harder for the super-wealthy to avoid.”

 

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