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Top Money Expert Says Cutting Inheritance Tax Would Have "Least Benefit" For Most People

Martin Lewis had an urgent private meeting with the chancellor earlier this year to discuss mortgages (Alamy)

7 min read

Personal finance expert Martin Lewis has warned that cutting inheritance tax would have the “least benefit”, and insisted the Autumn Statement next week must include “small tweaks” to fix “practical problems”.

Many sectors are waiting nervously for the Chancellor to present the Autumn Statement next week, which will outline the government’s plans for the economy in the coming months, including updates on taxation and spending plans. 

Lewis, a financial journalist and founder of MoneySavingExpert.com, told PoliticsHome that the government needed to consider where they could make “tweaks” that would actually improve people’s lives, and warned that cutting inheritance tax would only be a symbolic measure.

Chancellor Jeremy Hunt and Prime Minister Rishi Sunak have seriously discussed cutting inheritance tax in the upcoming Autumn Statement according to the Telegraph, and The Times has reported that Hunt could go as far as halving the rate from 40 per cent.

On Wednesday, it was confirmed that the government had achieved its pledge to halve inflation by the end of the year, and many Tory backbench MPs have continuously argued for tax cuts to boost economic growth. 

Treasury officials have said that cutting inheritance tax down from the current 40 per cent would not be inflationary, which may push the government towards the move in order to ease pressure from backbenchers.

Lewis had a peerage bid rejected by the House of Lords last year and has admitted before that he is a “floating voter” – having been a Lib Dem member up until the age of 24. He insisted he would not get drawn into party politics, telling PoliticsHome he would not comment on “which tax is best or worst”.

However, he said that cutting inheritance tax would have the “least benefit for most people”.

The most recent HMRC statistics show less than 4 per cent of estates across the UK paid inheritance tax in 2020–21, which Lewis argued shows a disparity between the number of people affected and the number of people who mistakenly think they might be affected by it.

“Sometimes there is a frustration when you look at politics that you think [politicians] are doing that because of perception, not based on the reality,” Lewis said.

“The reality is, only four per cent of estates have to pay inheritance tax, but a much higher percentage of people worry about it.

“My answer to that would be it would be a lot cheaper to educate people about the system than it would to change the system.”

He also called on the government to use the Autumn Statement to announce reforms to the Lifetime ISA scheme (LISA), a system which allows you to deposit savings and earn a 25 per cent bonus in order to pay towards your first home or towards retirement after hitting 60. 

If you withdraw funds from a LISA for any other purpose, you do not get back the bonus and you also receive a withdrawal charge, which gets paid to the government. Lewis argues that therefore many young people could be paying thousands into a system which could leave them with less money than they put in, as many first-time buyers might hit the maximum threshold for the property price you are allowed to spend the LISA on.

The upper threshold of house price that can be paid for using a LISA has not increased from £450,000 since the LISA scheme was introduced in 2017. 26 of the 32 London boroughs have an average first-time buyer price of over the £450,000 threshold and many other areas have seen substantial numbers of first-time buyers buying properties over the threshold as prices continue to rise. 

“Bringing in new measures and leaving in a broken Lifetime ISA would be a mistake and would be letting down hundreds of thousands of young people, especially in big urban centres in the south-east of England,” Lewis said. 

“The penalty was put in to stop people misusing the system when they're not buying a first time property. 

“My argument is they are doing exactly what they were encouraged to do, buying properties, and they're still being penalised because the LISA has not gone up with house prices.”

@martinlewismse

Are you 18-39 and one day want to buy a first home? An important warning about LISAs

♬ original sound - Martin Lewis

Lewis argued that the system should be reformed so that savers are not burdened with an additional withdrawal charge as well as getting the bonus taken away. 

“That seems a very simple fix and it means those people who've been trapped in areas where house prices have gone up and therefore wrongly saved haven't effectively been mis-sold,” he continued.

Student finance is another area which Lewis believes is in need of reform, as he is inundated by requests from students who were struggling with their personal finances under a system which Lewis described as “broken and unfair”.

PoliticsHome previously spoke to Conservative MP Robert Courts, who advocated for policies in the Autumn Statement that might specifically benefit young people, including tax breaks targeted towards under-30s and making student loan repayments tax deductible. 

However, Lewis said he believed that the focus should be on improving student finance for current students rather than reforming loan repayments. 

“We have a real problem within the student maintenance arena, that the maintenance support, especially in England, has not gone up with inflation,” he said.

“We have a means-tested system that is still not properly communicated based on parental earnings and quite simply, many students do not have enough money to live off and the amount that they're being given does not cover basic accommodation.”

He said he had seen many examples where a partner had moved in with a student’s parent, changing their eligibility for maintenance grants and leaving them with no state support. 

“Clearly that new partner of the parent is not going to fund the £4,000 pound difference for an 18-year-old child they only just met, and yet the system incorporates their income… it is broken and it is incredibly unfair,” he said.

While Lewis was clear on what specific areas he would want prioritised, he expressed his doubt as to whether the political system itself is built to be able to deliver positive, long-term changes for consumers.

“I'm realistic about what the government is going to do, so I’m trying to focus on things that won't cost much revenue, that involve negligible amounts of money,” he said.

“The system is not fit for purpose across so many different sectors right now, but there are many small tweaks which have made incremental improvements, which I think where we are in the political cycle is about all you can push for.” 

He added that for the last 20 years, he had been concerned that politicians are “too interested in their legacy” rather than “fixing some of the more practical problems which would have an immediate, direct impact on many people's lives”.

“Unfortunately, we have an adversarial political system that means that we set politicians up in Parliament to throw brickbats at each other and try to knock each other down rather than working in a long-term consensus way to do what's best for the country.”

Both the Conservatives and Labour are trying to pitch themselves as the party of long-term change: the Tories recently adopted the slogan of ‘long-term decisions for a brighter future’ and Keir Starmer responded to the King’s Speech last week by saying “the change Britain needs is from Tory decline to Labour renewal”.

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