Inheritance Tax Reform: Is the UK Getting Closer to a Fairer System?
Inheritance Tax (IHT) has long been one of the most controversial aspects of the UK’s tax system. Often seen as outdated, complex, and unfair, the tax has sparked decades of political debate. With growing public pressure, shifting political priorities, and economic inequality under the spotlight, many are now asking: is the UK finally getting closer to a fairer inheritance tax system?
The Current System: Complex and Controversial
Currently, inheritance tax is charged at 40% on estates valued above £325,000, with an additional allowance (the residence nil-rate band) available when passing on a main home to direct descendants. Despite the high rate, only a small percentage of estates actually pay the tax, due to exemptions, reliefs, and careful estate planning.
Critics argue that the system disproportionately benefits the wealthy, who can afford to use trusts and tax planning strategies to minimise liabilities. Middle-income families with rising property values—particularly in the South East—can be caught out, while ultra-wealthy individuals often avoid the tax altogether. The result is a system seen by many as neither efficient nor equitable.
Calls for Reform
There have been repeated calls for reform from economists, tax experts, and think tanks. In 2019, the Office of Tax Simplification (OTS) published a report recommending streamlining reliefs, reducing complexity, and improving transparency. However, no major changes followed.
More recently, public frustration around wealth inequality—exacerbated by the COVID-19 pandemic and cost-of-living crisis—has renewed demands for a system that better reflects modern realities. Critics of the status quo argue that inheritance tax should be restructured to promote fairness, reduce loopholes, and ensure that it captures genuinely large transfers of wealth without penalising ordinary families.
Political Shifts and Proposals
In the run-up to the next general election, inheritance tax has become a politically charged issue. Some politicians advocate scrapping it altogether, branding it a “death tax” that punishes thrift and aspiration. Others support a complete overhaul, suggesting lower rates applied more broadly, or shifting to a lifetime receipts-based model—where tax is paid by beneficiaries based on what they receive, not the size of the estate.
A receipts-based model, like those used in Ireland and other countries, is often cited as a fairer alternative. It would allow personal tax-free allowances and treat inheritances more like income, while still targeting significant wealth transfers. This could ensure that tax is spread more evenly and reduce opportunities for avoidance.
Is Reform on the Horizon?
While no concrete changes have been announced, there are signs that inheritance tax reform is gaining traction. Polling shows broad public support for change—especially if framed as a way to reduce inequality and fund public services. In a time of squeezed public finances, any reform would likely need to balance fairness with revenue generation.
Whether the government opts for a radical overhaul or minor adjustments remains to be seen. But with public pressure mounting and political will shifting, the UK may be edging closer to a system that is simpler, more transparent, and, crucially, fairer.
Published: 18th September 2025
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