Cracking down on inheritance tax reliefs, including business relief, has been recommended by the IFS.
In her manifesto analysis, IFS deputy director Helen Miller said: “Just to highlight one thing that I think you should do, regardless of how much money you want to raise, is remove or at least cap various reliefs, including those for agricultural land, businesses and pensions.”
But Mr Davy warned that scrapping business relief would hit economic growth because companies would either need to build up reserves for when their owner dies, or close or sell the business upon their death to cover the tax bill.
He said: “It would jeopardise the long-term viability of the business as well as jobs and livelihoods across the country.
“That [£1.4bn in tax relief] isn’t money which is sitting with individuals in their personal bank accounts. That is money that is sitting in the business being used for investment, growth, employment and long-term certainty.”
Ollie Saiman, co-founder of wealth manager Six Degrees, said that removing inheritance tax relief on private company shareholdings would be “the nuclear option” that would have a massive impact on small businesses.
A Treasury spokesman said: “We have set out the need to deliver economic stability, so we can grow our economy and keep taxes, inflation and mortgages as low as possible.”
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