Government Should Abolish Inheritance Tax, Says Former Chancellor Zahawi

Former Chancellor Nadhim Zahawi in an undated file photo. (Yui Mok/PA)

Conservative MPs have called for the abolition of the inheritance tax, with former Chancellor Nadhim Zahawi suggesting it was “morally wrong” to take someone’s assets on their death.

Writing in The Telegraph, Zahawi argued that inheritance tax negatively affects personal finances and the wider economy.

“Inheritance tax is that other spectre that haunts us alongside death,” he said.

The former chairman of the Conservative Party, Zahawi suggested that Prime Minister Rishi Sunak’s government had “a golden opportunity” to scrap the inheritance tax.

“Inheritance tax is often a killer for family businesses. They can often be short of liquidity; getting lumped with a big tax bill (at the worst moment on the death of a loved one, no less) means you often must sell up because there is no spare cash around to pay it,” Zahawi said.

Among the supporters of the call are former Business Secretary Jacob Rees-Mogg and former Home Secretary Priti Patel.

Rees-Mogg has argued that inheritance tax is unfair and economically damaging.

“Unfair because it is a double tax on already taxed assets. Economically damaging because it leads to the misallocation of capital, as investments are made to avoid a distortive tax rather than to maximise investment return,” he told The Telegraph.

Britons should be in control of their income and the ability to determine the future of their assets, according to Patel.

Zahawi’s views echo that of the Conservative Growth Group (CGG) that consists of more than 50 MPs who, according to The Telegraph, are planning to launch a campaign in June to sway the government to abolish the inheritance tax.

CGG Chairman Ranil Jayawardena argued that inheritance tax should be abolished altogether.

“It’s also a double tax, because it’s a tax on money that has already been taxed. It’s not fair, it’s not Conservative, and it’s not very British. It needs to go,” Jayawardena said.

Sore Point

The standard inheritance tax rate in the UK is 40 percent, while the threshold it applies to is £325,000. If a person leaves their home to their children or grandchildren or if the estate is worth less than £2 million, the tax-free threshold can increase to £500,000.

Zahawi said that compared to other types of property, the higher threshold for residential property adds inflationary pressures to house prices.

“The most frustrating problem with this complication is that there is huge opportunity to get around the tax. As such, very often this is a tax that falls on those who can’t afford professional advice, or when someone dies suddenly,” he added.

The Autumn Statement delivered by Sunak’s government in November 2022 froze inheritance tax thresholds until 2025–26.

Zahawi recognised that the government was currently battling high inflation and suggested that by abolishing the inheritance tax, Sunak and Chancellor Jeremy Hunt will back British families “in their desire to pass on their hard-earned savings to the next generation.”

Zahawi’s proposal came under criticism from Labour Party MPs, who argued that scrapping the inheritance tax will benefit the rich.

“Tory MPs want to scrap inheritance tax for the richest 4 percent of people in Britain. They represent the super-rich, not working people. Since 2009 the collective wealth of Britain’s richest 1,000 people has increased by almost £500 billion. We need to tax this obscene wealth,” said Labour MP Jon Trickett on Twitter.

Last year Zahawi was accused of avoiding tax by using Balshore Investments, an offshore company registered in Gibraltar, to hold shares in the polling company he co-founded, YouGov. In January he said he paid a penalty to HM Revenue and Customs (HMRC) to settle the dispute but insisted that his tax error was “careless and not deliberate” and he was “confident” he “acted properly throughout.”

Labour’s Angela Eagle said on Twitter there was “little surprise” in Zahawi’s call, given that his “family might gain up to £40m on his reported £100m fortune if inheritance tax is abolished.” She added that the measure “certainly won’t help the majority.”

The Office for Budget Responsibility reported that in 2021–2022 the share of inheritance tax in the UK’s GDP was £6.1 billion, marking a 14 percent increase from the financial year 2020–2021.

HMRC attributed the increase in part to the volume of wealth transfers and inheritance tax liable deaths during and after the COVID-19 pandemic.