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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7 Comments
“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
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