Public are ‘funding’ political donations

Leading tax experts have called for rules on inheritance tax relief to be reviewed to halt the practice of taxpayers indirectly funding political parties.

Under current rules taxpayers provide an element of support to political parties via inheritance tax breaks if an individual dies within seven years of making a gift.

Despite the claims of politicians that taxpayers would not stand for the state funding of political parties, the IHT rules mean the public already does – although the Inland Revenue does not have relevant figures to show the cost to the exchequer of the tax exemption.

The call to review the system follows a series of million pound plus donations recently offered to the Labour Party, including an alleged #2m donation from publisher and financier Christopher Ondaatje.

PwC tax partner, John Whiting, said: ‘Although the tax subsidy is minor it has expanded markedly since 1988. There are no caps on the amounts donated and the tax system needs to be looked at coherently as part of the overall issue of state funding of political parties.’

The current system states that broadly if an individual leaves a gift shortly before death to an individual who is not their spouse, the amount is taxed at 40%.

In the hands of a political party the amount is not taxed.

However, the IHT treatment of gifts given to political parties is the same as if the gift is given to a charity.

Maurice Fitzpatrick, head of economics at Chantrey Vellacott, added: ‘Taxpayers are giving limited assistance to political parties. The matter may need reviewing. Do people really think it is right that political parties are afforded the same IHT treatment as charities?’

For the rules on inheritance tax visit

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