Radical plans to change inheritance tax have been left out of Labour’s manifesto amid warnings from London MPs that the move would cost them key seats in the capital.
A proposal to ‘soak the rich’ by slashing the tax-free allowance for family homes, and other ideas for lowering the threshold at which the ‘death tax’ is paid, have been mooted within the party in recent weeks.
But the policy was missing from the Labour manifesto and was not added at the final ‘Clause V’ meeting of senior MPs, members and trade unions that approved the policy programme on Thursday, HuffPost UK has been told.
The ‘Fair Taxation System’ section of Labour’s manifesto rules out rises in income tax, VAT or National Insurance for those earning less than £80,000 a year.
However, it is silent on inheritance tax and the omission has fuelled hopes among Labour MPs that they have won their battle.
It remains unclear if the idea will be revived when the manifesto is officially launched next Tuesday. One source said fresh warnings against the tax rise were raised during the Clause V meeting.
A so-called ‘Mansion Tax’ - Ed Miliband’s plan to impose a levy on homes worth £2m or more - has already been dumped by Shadow Chancellor John McDonnell following strong lobbying by Labour MPs in London.
The party’s candidates in the capital have also warned the party’s leadership that inheritance tax hikes would have a similar negative effect on their chances of holding onto crunch seats.
In many parts of London, house price inflation has left families in danger of being caught out by the ‘death tax’, even if they don’t feel ‘wealthy’.
What Is Inheritance Tax?
Inheritance tax of 40% is currently levied on estates worth more than £325,000 for individuals. For those leaving their home to their children, the threshold kicks in at £425,000.
And for those married or in a civil partnership whose estate is worth less than their threshold, any unused threshold can be added to their partner’s allowance when they die. This raises the tax-free allowance to £850,000.
With several marginal seats at risk, one senior party figure told HuffPost UK that a strong case had been made to the Shadow Treasury team that inheritance tax (IHT) changes would cost seats.
Some party sources have said they have been considering IHT changes as part of a broader package to get the rich to pay more to help fund public services.
McDonnell has himself talked of reversing Tory “tax giveaways” but has not been specific in making Labour pledges on inheritance tax itself.
Many Labour MPs were “spooked” earlier this month when the London Evening Standard reported Labour sources saying the party could raise £1 billion by halving the maximum tax-free joint-allowance for couples leaving family homes to their children, from £850,000 to £425,000.
The paper reported that the soaring property market means that around half of the capital’s homes would pay more, including some suburban family homes in McDonnell’s own west London constituency of Hayes and Harlington.
Boris Johnson pounced on the suggestion.
George Osborne’s 2015 Summer Budget allowed married couples and people in civil partnerships to pool their inheritance tax-free allowances, rising by 2021 to maximum of to £1 million.
One option for Labour is to scrap a £100,000 rise in the allowance that came in last month, cutting the threshold to £325,000.
However, backers of an IHT hike think there may be ‘wriggle room’ in Labour’s manifesto for consultation on “options for sustainable funding” for social care.
In 2010, Health Secretary Andy Burnham floated the idea of a 10 per cent levy on all estates on top of inheritance tax to pay for social care, prompting the Tories to run an election campaign poster featuring tombstones attacking “Labour’s death tax”.
But the Financial Times reported on Friday that Nick Timothy, the prime minister’s co-chief of staff and author of the Tory manifesto due next week, has been looking at changes to inheritance tax or other reforms to use a post-death tax to help fund social care.
Timothy, who has helped craft the PM’s agenda of taking on ‘the privileged few’, believes that Osborne and David Cameron’s views on inherited wealth are out of step with many voters.
The issue has long been a touchstone for the Conservatives, however. Osborne’s 2007 plan to slash inheritance tax was a pitch to aspirational voters that forced Gordon Brown to abandon plans for a snap general election in 2007.