George Osborne proposes to raise the Inheritance Tax limit to £1 million so, as he puts it, the family home is not subject to this tax.
The UK is a country suffering an increasing poverty gap. As example, the proportion of wealth held by Britain's richest 10% has increased from 47% to 54% in the last ten years.
The reason is simple. We do not tax people's houses. As a result they have rocketed in price. Now the only young people who can get onto the housing ladder are those whose parents can help them.
Osborne's tax change would only exaggerate this trend - giving more help to those who already have homes whilst denying those on low income and with no wealth any chance of getting on the ladder at all.
This path leads to economic apartheid between a country of 'have homes' and 'have no homes'. Inheritance tax has been the sole bastion for redistribution of wealth that has helped prevent this outcome. Removing the tax from homes will simply guarantee some will never get one.
Is that what George Osborne calls tax justice? If it is, I don't.
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“The UK is a country suffering an increasing poverty gap” is an interesting statement given that Big Gordy has spent the last 10 years trying to remove it.
“The reason is simple. We do not tax people’s houses. As a result they have rocketed in price.” No “we” don’t tax people’s houses (apart from council tax, or whatever it is called now), but that is not why they have increased in price. That is more properly a result of the forces of supply and demand.
“Inheritance tax has been the sole bastion for redistribution of wealth that has helped prevent this outcome.” It is certainly true that Gordon has taken a bigger slice through inheritance tax, but if your first statement is true then this one must surely be false.
I am intrigued by but don’t understand your thesis about the link between inheritance tax and the affordability of houses – perhaps you should expand on it? But I hope you are pleased to see New George’s promise to remove stamp duty for first time buyers; a move which should assist those poor first time buyers you seem so concerned about!
George Osborne and his colleagues say they will provide “aspiration, empowerment and opportunity” for all. How? By increasing the threshold of the so-called ‘Inheritance’ Tax from £300,000 to £1,000,000, on top of all the other unlimited asset-linked and gift-linked exemptions for the wealthy! By putting more unearned capital into the hands of those who are already going to get vast amounts of capital that they themselves have done nothing to create, earn, save or make!
Aspiration, empowerment and opportunity does not seem to apply to those whose parents have died or who have nothing left to give or to leave! Inheritance Tax Reform should be reconsidered in order to positively redistribute gifted and inherited capital in each new generation.
Spreading wealth more widely in this way would of course spread the ownership of the housing stock more widely
I’m stunned how poorly most people understand these issues. I’m glad you are standing up and explaining the unfairness of this tax change.
As for the £2k stamp duty reduction! As someone with a starter flat I am looking forward to the £2k more I am going to charge the first time buyer that purchases my flat in the future.
Rules of supply and demand say if everyone has £2k more to spend then the price is obviously going to go up by the same amount?!
GFoster
You’re exactly right!
Richard
Yes, But….. If the private ownership of wealth were spread more widely in each new generation by a negative (£10,000 receipt at 25) and progressive Capital Receipts Tax (starting at 10 %) on cumulative lifetime receipts of unearned capital (including the £10,000), then the ownership of houses would be spread more widely. Capital would flow from the streets of London to the parts of the economy other measures do not reach. More heirs of the owners of multiple houses to let would have to sell some houses to pay the tax: more young people with a £9,000 after-tax British Universal Inheritance would be able to put down a deposit on a house. Taken together, these taxes need not raise house prices. They might do the opposite, by bringing more housing space into wider ownership.
To bring about such a wider spread of the private ownership of wealth in each new generation, all so-called ‘Inheritance’ Tax gift and asset linked exemptions should be abolished (except between partners, spouses and cohabiting siblings) and the rate should be dropped from 40 % to 10 %. The 10 % paid by givers should be offsettable (to avoid double taxation) against the tax due under the Capital Receipts Tax.
And for goodness sake let us have no one complaining that the 10 % tax on the luxury expenditure of giving and bequeathing is double taxation. Of course it is! So are VAT, Council Tax, car tax and other taxes on expenditure out of already taxed income. So what?
Is the progressive tax on cumulative Lifetime Capital Receipts, of capital that the beneficiaries have done nothing to create, earn, make or save for themselves double taxation? No, it is not.
Of course the parameters can be argued about. But with the figures above the taxation of inhertance would be a modest direct LIFETIME GAIN (between £10,000 and zero) for the majority who inherit less than £90,000 during their lives.
The last figure I heard for the average wealth of every adult and child in the UK was £85,000, according to the Office for National Statistics as reported by The Times. Does anyone have a later figure for this, please?
Dane Clouston
http://www.universal-inheritance.org (needs bringing up to date)
Although I agree with the ideas behind your proposal. The main problem I see with it is that a windfall gain of £10,000 at 25 would probably be wasted by the majority of those who receive it.
People would not appreciate something that they had not worked for, and many who are never likely to see that amount of money again would probably take the opportunity to “live it large” for a while.
In my view your are giving our fish, rather than encouraging people to learn to fish for themselves.
If there is money to be handed out, then I suggest that this should be aimed at making hard work worthwhile, and encourging those who are genuinely adding value to our country.
I haven’t thought too much about it, but some suggestions I would make are cuts in income tax and free (worthwhile!) adult training courses. Assisstance for those setting up businesses could be another idea.
May I answer each paragraph of GFoster’s in turn?.
1. What may seem a waste to one person is a joy to another. What is a joy to one person is the business opportunity and capital creation of another. What is a capital creation to one person is a capital gift or bequest received by another. And so on we go, preferably without being too judgemental of others’ preferences.
2. Once a lifetime post war credits were treated very differently from other receipts. The same is likely to be true of the British Universal Inheirtance £10,000. Some will live of course live it up. Many others will not.
3. Fishing analogy: British Universal Inheritance is more like giving people the money to buy fishing boats or rods and to enable them to afford to learn how to use them, rather than giving them fish.
4. British Universal Inheritance is concerned with the taxation and redistribution of the inheritance of the stock of capital in each new generation, in the interest of greater equality of opportunity and the wider spread of the private ownership of capital. It is not directly concerned with the taxation and redistribution of the flow of income and expenditure.
However, it will have favourable effects upon the latter through increased entrepreneurial activity, home ownership and university education, together with reduced alienation, financial and social exclusion, poverty. A once-a-lifetime asset welfare state will reduce the need for the income welfare state so that taxation on annual income and expenditure can be reduced.
Wealth is either state, institutionally or privately owned. Is it right for privately owned wealth to be very unequally inherited, on the view that only those whose parents have made, inherited, won or stolen wealth are likely not to waste it? Or is it right for it to be less unequally inherited in order to give every young adult – whose genes are not known by lookng at their parents alone – a chance not to waste a basic minimun amount of capital and to make something of it?
The only time it is possible to do anything about the growing inequality of wealth is at the point of transfer from each generation to the next. Is increasing inequality of ownership of assets a good thing? If not, what else is to be done about it other than using taxation of inheirtance to reduce the wealth gap?
Dane Clouston
Director OPPORTUNITY – The Campaign for British Universal Inheritance
http://www.universal-inheritance.org
What you say is nonsense. ‘We do not tax people’s houses’ is not the reason why they are highly priced!
Why on earth should you be able to tax my house when I die? I have worked all my life for it, and for my little savings! When my children inherit, that will be money which has already been taxed twice – first when I earned it, secondly when I saved it! Why are we to be taxed three times?
Most other countries do not have this tax at all, or if they do it is far lower than here – i.e. compare the US rates!
ABOLISH INHERITANCE TAX UP TO 1 MILLION, MR OSBORNE!
Sorry, Mel, you have not worked for the value of your house. Most of the value resides in the land and its value has absolutely nothing to do with your efforts. The price of land goes up (and down) while you sleep, as Churchill remarked a century ago.
Funnily enough, I received notification on new posts on this blog on the same day that I wrote this email to George Osborne, with copy to David Cameron, Oliver Letwin and David Willetts. Unfortunately the one to George Osborne was returned so I will have to check the email address and send it again. Anyway, here it is:
Dear George Osborne,
Congratulations on your speech!
I see that you are still planning to ensure that only millionaires will pay Inheritance Tax, although not immediately. May I suggest a novel way of fulfilling that pledge?
Replace Inheritance Tax by a 10% flat rate Capital Donor Tax on all gifts of capital (however defined) and bequests/estates – with no exemptions except between cohabiting siblings [and spouses and partners, of course].
(Giving and bequeathing capital is luxury expenditure. A rate of 10% is lower than VAT on other expenditure. Treating lifetime gifts in the same way as bequests from estates will remove the pressure on elderly people to give capital away during their lifetime.)
Make the Capital Donor Tax deductible from a new progressive lifetime Unearned Capital Receipts Tax with a 10% starting band of £1,000,000.
(It is fairer and gives greater equality of opportunity if tax is related to total amounts of unearned capital received by beneficiaries rather than to total amounts given and bequeathed from their estates by donors.)
Anyone inheriting up to a million during their lifetime will pay no more tax, since it will already have been paid by the donor.
Let the rate of tax rise gradually to 40% on total lifetime receipts above £1,000,000. Use the proceeds of the combined taxes to broadly finance giving every UK-born British citizen at the age of 25 a National Universal Inheritance of 10% of average wealth – say £10,000.
(Average wealth of every adult and child at the end of 2005 was £85,000, according to the Office for National Statistics).
It will be said that 25 is too late for many people. But 25 is an age of greater financial responsibility than 18. However the government could subsidise interest rates for lending by banks for approved purposes above the age of 18 (e.g. education, business start ups and house deposits) against the certain receipt of £10,000 at 25.
This will make the Conservative Party more genuinely the party of the Opportunity Society.
Of course, once the proposal is introduced, there will be further political debate about the amount of the British Universal Inheritance, the related progressive rates of tax and the size of the 10% tax band of the Unearned Capital Receipts Tax.
With best wishes
DANE CLOUSTON
Director, OPPORTUNITY – The Campaign for British
Universal Inheritance
http://www.universal-inheritance.org
PO Box 1148 Oxford OX44 7AT
01865 891067
07711 873331
@mel
Mel,
I agree that you have worked all your life for your house and your savings, and that you have a right to dispose of it and to spend the proceeds as you wish.
But you accept VAT on ordinary expenditure, in order to add to the annual income of the government in order to cover its annual expenditure.
Could you not accept also a ten percent Capital Donor Tax on what is the luxury expenditure of giving or beaqueathing capital to your children or others, so that those who would otherwise inherit nothing during their lifetime can receive a basic minimum inheritance of capital?
Any money you spend is taxed twice, whether on yourself or on giving to your heirs. What is wrong with that?
As it is, with the present Inheritance Tax at 40% – too high a starting rate – but with vast exemptions for lifetime gifts as well as for business and farming assets, there is pressure on the elderly to pass on capital before they would naturally do so.
The tax that should go up to 40% is the Unearned Capital Receipts Tax, but with a starting band of £1,000,000 (at least as far as Conservatives are concerned – others might have different figures in mind). So only those who receive more than a million during their lifetime would pay any more tax in addition to the 10% Capital Donor Tax already paid by the donors. It is much fairer to base the tax on totals received by beneficiaries rather than on totals given and bequeathed by donors.
RE-NAME INHERITANCE TAX AS CAPITAL DONOR TAX AND REDUCE THE RATE TO 10%
INTRODUCE A PROGRESSIVE LIFETIME UNEARNED CAPITAL RECEIPTS TAX STARTING AT 10% FOR THE FIRST £1,000,000, FROM WHICH CAPITAL DONOR TAX PAID IS DEDUCTIBLE.
USE THE PROCEEDS TO BROADLY FINANCE A BRITISH NATIONAL INHERITANCE OF £10,000 FOR EVERY UK-BORN BRITISH CITIZEN AT 25 – WITH SUBSIDISED INTEREST RATE BANK LOANS FROM THE AGE OF 18 FOR APPROVED PURPOSES SUCH AS EDUCATION, BUSINESS START UPS AND HOME DEPOSITS, AGAINST THE CERTAIN RECEIPT AT 25.
To make Britain a land of real opportunity, there must be a genuine effort to reduce the enormous differences in wealth among its citizens; the figures for ownership of wealth show great inequity and it grows greater every decade. If only to avoid future civil unrest, politicians should take action to make the seeds for entrepreuneurship more available to the poorer sections of society so that they at least will have the opportunity to create wealth by their own efforts. The economy can only improve by allowing a wider distribution of capital.
Universal Inheritance to all citizens at a responsible age when the excesses of adolescence are over would make this expansion of our economy possible and a Capital Tax on individual estates at death would provide the revenue to fund it. There should be no exemptions to this Capital Tax by the creation of Trusts or other methods and, providing this can be achieved, the rate of tax would be considerably less than the current Inheritance Tax rate of 40%.
The amount payable to individuals would be the subject of debate of course, but whether it is spent on recreation, as a deposit for a residence or on the establishment of a business, it will benefit the economy; that is the principal reason for the change. The other is to create opportunity for poorer people in our society who see the consistent widening of the wealth gap as potentially dangerous.
that would be interesting to see how aristocrats and businessmen are selling their assets in order to get cash and pay off the iht.
David Cant,
How right you are!
It is amazing to hear the Conservative Party saying how concerned they are about poverty while reducing Inheritance Tax for the wealthy who already benefit from huge asset-linked exemptions! Hypocritical – or a blind spot? I hope David Cameron and other leading Conservatives will lead them out of that position.
It is time to create Popular Democratic Capitalism in place of largely unfettered Dynastic Capitalism, with Universal Inheritance as a human right in addition to Universal Suffrage.