On inheritance tax

At present inheritance tax is charged on estates worth more than £325,000 (£650,000 for couples). The Conservatives want to increase this to £1m for couples. This is another give-away for the rich.

There are some who would scrap inheritance tax altogether. I think it a very fair tax. Inheritance is unearned income, and since we must have taxation this would appear to be the least punitive or disincentivizing.

The bulk of many estates, as far as I can tell, lies in property.

The Land Registry House Price Index for February 2015 shows that the average house price in England and Wales is £180,252. For the East of England the average is £202,394, and for Southend-on-Sea it is £172,024.

The threshold at present is generous enough, given that for a single person it is still over 50% above average house prices. For a couple the current inheritance tax threshold is more than three times the average house price.

Raising the inheritance tax threshold will do nothing for average families in average homes. It is a give-away for those not content with having more than the rest of us, they also want to be taxed less on it.

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One Response to On inheritance tax

  1. This Tory “give-away” seems wrong on so many grounds

    First is it really a priority? (How come we have suffered austerity for five years, the deficit remains a problem – but the Cons can give away so much? Truly massive hidden cuts on the way – once the cons have got everyone salivating over their own personal give-aways?)

    Secondly, if it is a priority why is the relief on a “family home” and not on the whole estate? It would seem that if you are frail but very rich – and have live-in care, you will qualify. But if you are frail and move into a care home – selling your home to pay for it, you will not qualify.

    Thirdly, those areas where house prices are high will benefit more than low house price areas. This exacerbates regional inequalities.

    If you want to reform Inheritance Tax, which is paid by the moderately rich – but not by the very rich who can afford clever accountants with clever schemes to avoid the tax – there are better ways to do so. (We will leaving aside the whole question as to whether people should be allowed to benefit from “wealth” that they have not earned – that is probably a change too far!)

    It currently works at a single rate (40%) and kicks in when taxable estates exceed £325,000. A “spouse exemption” means that property passed to a spouse is exempt from tax (as are donations to charity). Other exemptions are a bit cleverer and usually require an accountant to be used effectively.

    Additional exemptions and allowances just make this tax more complex.

    … parents will each be offered a £175,000 allowance to enable them to pass property on to children tax-free after their death.

    The new “family home allowance” will be transferable on the death of one spouse and can be added to the existing £325,000 transferable allowance to bring the tax-free total up to £1m.

    The full amount would be transferable even if one member of a married couple has died before the policy comes into effect, the Conservatives say, and will benefit existing widows and widowers.

    For properties worth more than £2m, the allowance will be gradually tapered away, so that those with homes worth more than £2.35m would not benefit at all.
    BBC Website 11 April 2015 : Election 2015: Tories would cut inheritance tax

    Either abolish the exemptions and introduce tiers of tax or make it taxable in the hands of the recipient. ( http://wp.me/pSvdp-Fh )

    The spouse exemption can be replaced by a “deferral of tax” (until the spouse dies) – which means that a widow(/er) will not have to sell his or her marital home to pay a tax bill when his or her spouse dies.

    Tiering the tax means that there might be a 20% band (say from the existing £325,000 threshold up to taxable estates of £1,000,000) before the full 40% kicks in. (There could even be a 50% tier.) This has the benefit of being simple and progressive.

    Taxing in the hands of the recipient addresses the issue of the “tax justice” of being taxed on earnings at 20%, 40%, 45% etc. but not being taxed on unearned bequests. (“Gains without virtue should be taxed at least as highly as taxes on work.”) The bequest would get taxed as if it was marginal income in the hands of the recipient. This addresses the issue of equality of taxation for different “gains”, but opens up avoidance opportunities for clever accountants. (Don’t bequeath just to your son, but split it between, your son, his wife, their children and their grandchildren – and possibly the family pets! But perhaps this greater distribution of wealth might be deemed a public good?)

    The simpler reform of tiering probably addresses the feeling of injustice that middle class Conservatives (and a few others) feel when they see Grannie’s estate being taxed at a (marginal) rate of 40% – all because they were not rich enough to afford clever accountants.

    This Conservative “home” relief is complex and is just a “dog-whistle” announcement for near-rich Tories.

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