Whether inheritance tax (IHT) affects you or not, it must be plain to you that it is unjust?
Maybe not, let me explain:
IHT doesn’t raise any significant amount of revenue. Payment to the exchequer drew in £2.5billion in 2003/2004 (less than 1% of government revenue) but cost large amounts to administer. According to the Institute of Economic Affairs (IEA):
The tax yields little revenue, the costs of collection are high and large numbers of people of modest means - especially those with houses in the South East - have been swept into the inheritance tax net because of the rapid rise in house prices compared with the much smaller increases in the inheritance tax threshold.
In fact in 2003/2004 30,000 estates had to pay IHT. By the end of 2004 many more estates fell into Brown’s IHT bracket. Estimates range between Channel 4’s 1.6million households, the BBC’s 1/3 of all households and an estimate of 2.4million households made by the Conservatives in 2004.
The tax raises little money so what’s the point? The answer is ideological. Labour stands for the common man and so a tax on rich people’s estates is good for society. Sadly for that argument the tax doesn’t hurt the very wealthy; again the IEA:
The truly affluent take evading, sorry avoiding, advice from lawyers and accountants. Inheritance tax makes the very wealthy wealthier.
The tax also encourages people to leave the country. If you die with an estate held in a third country without IHT, your children (or other beneficiaries) will be better off. What rich parent wouldn’t do that if they practicably could?
So the tax raises no revenue, drives out those who pay most tax (and contribute most to the economy) and fails to achieve its ideological goal. Why do we still have it?
Other countries have abolished the tax and seen economic rewards. Consider Italy which “realised that the complex tax administration could be be utilised more productively elsewhere. Secondly, the government is hoping that the abolition of the Inheritance and Gift Tax will halt and then reverse the export of capital from the country.” (Source). Russia abolished the tax (because of concerns about ‘double taxation’) with affect from the 1st January as part of their drive towards a flat tax.
Ultimately IHT is an ideological tax designed to punish people for being too wealthy. Wealth is something that should be celebrated in a free market because to do otherwise stymies people’s desire to strive and make money. Wealthy people are vital to an economy and the politics of redistribution of wealth died as a political argument when Labour abolished Clause 4. The IHT should go.
My arguments so far have concentrated on the economic case but there is also an emotional one. Is it right to tax someone at the very time they are dealing with loss? I would suggest not.
The Daily Express is running a campaign to get as many signatures from those opposed to the tax as possible. If you agree, please print and return the following slip to the address near the bottom. Click on the image for a larger version:
Source for all IEA (Institute of Economic Affairs) references: link
August 3rd, 2007 at 3:19 pm
The sad thing is many people are either not aware of Inheritance Tax or go under the mistaken impression it will not apply to them. I have a vested interest in this as I run an Estate Planning company, but most people we see are astonished by what the potential bill their families will face would be if they had not done any planning. Don’t forget your family will have to pay the Inheritance tax bill before they can get their hands on any of your assets!
There are many legal strategies for avoiding this tax and for most people a large majority of the tax bill can be eliminated by the production of Inheritance Tax saving wills.
My one piece of advice untill the government act and do away with this tax is make an informed decision, work out what bill your family will face when you die and remember you could die tomorrow then you decide do you want to do something about the biggest bill you are likely to leave your family with.
If it helps we have an Inheritance Tax Calculator on our website and are happy to talk to anyone and help them understand the liability they are leaving their family with.
www.gb-legal.com
April 21st, 2008 at 5:25 pm
The arguments for changing Inheritance Tax are well rehearsed, as are the discussions around raising the thresholds for IHT. I think the most potent argument for either the rate to be lowered, IHT to be abolished or for the thresholds to be lowered are pretty strong. If I spend my working life working to provide a house that I wish to leave to my children, then surely my wishes should be acknowledged. After all I have paid tax in a multitude of ways already on the money that I used to buy the house: income tax, VAT, fuel tax etc. How many bites of the cherry does the Governent want?