I've been asked how I could say as a practicing accountant that I have not done Inheritance Tax planning.
The answer I gave on the Moral Maze was, of course, instantaneous. But since then I have struggled to think when or if I ever offered advice on Inheritance Tax planning and can't recall doing so over many years.
There are good reasons. First my client base have tended to be of an age where there was little inclination to do this.
Second, I have always been willing to discuss Inheritance Tax mitigation. But when doing so follow the maxim a doctor told me which was:
A good doctor knows how to operate
An excellent doctor knows when to operate
The best doctor knows when not to operate.
What I mean is this. I'd sit the client down. Give them a coffee. Listen to the misinformation they had on the tax and then talk through the facts with them.
First of all I'd show how little tax they might owe.
Second, I'd show how much they could leave after tax.
Third I'd discuss when they were planning to die. In most cases it was far off: too far off for any reasonable plan for financial security to be put in place.
Fourth I'd discuss how often law changes and would stress that anything we could do now would most likely be out of date by the time they died.
Fifth I'd explain that any planning would quite probably be expensive. And that cost might be on-going.
Sixth, I'd show that given the uncertainties no one could guarantee who would win from the planning, bar me. This reflects the serious concern I have about the motivation of many in this market - much of which I think unethical.
Seventh I'd explain all the allowances available in law (the use of which I would exclude from Melanie Phillips question - this is not planning - this is compliance).
Eighth I'd make sure they had a will that reflected their real wishes.
Ninth I'd remind them that gifts to charity were tax free.
And after all that we'd had several coffees and they would have decided there was nothing more they wanted of me bar a letter summarising what we'd discussed that they could give to a solicitor to make sure their will was updated.
Now if that's planning I gave the wrong answer to Melanie Phillips.
But I think she meant 'avoidance' by the term she used. Ensuring people comply with the spirit of the law, which is what I think I've explained above is principled (as she said I was). It's avoidance that is not.
And I'll say this. I never had a client complain. And they happily paid for the advice.
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Philips meant planning. I know that in tax speak “avoidance” is illegal and “efficiency” or “planning” are legal, but to us laymen the terms are interchangeable. She wasn’t asking you if you helped your clients break the law. She was trying to point out the irony of someone who may have made a living advising people how to (legally) escape tax arguing that morally the tax was a good thing. You said that you had never given this advice which immediately cut her line of attack.
I thought that the context of her question was broader than just IHT. i.e. as an accountant you must have advised people or companies on tax efficiency yet there you were defending a part of the tax system which generates sustantial work for your profession.
Herein lies my objection to inheritance tax. Inheritance tax is “unfair” because it falls predominantly on one group. My guess is that most inheritance tax is paid by people with 500k to 2m of assets (if you have any data to either support or debunk this view I would be interested to see it).
Those poorer don’t pay because their assets fall under the threshold. Those richer dont pay because they can afford top quality advice and a greater proportion of their assets are more likely to be liquid or fungible into assets or vehicles not subject to IHT. In addition, they can afford to give away a greater proportion of their wealth in their lifetimes.
So as a percentage of lifetime wealth it is this “middle wealth” group who are hardest hit. Their major asset is likely to be their house. As you pointed out on the program, this makes IHT a tax on the capital appreciation of a home.
You suggested that this makes IHT a good tax since its often the only means to tax “unearned” capital gains on housing. If this is the main practical benefit of IHT, why not scrap it and introduce capital gains tax on primary residences. Would you support this change?
Telling people to pay tax in acordancewith the law, using just the straightforward reliefs that parliament intended in the form they are offered in law does not constitute any form of abuse. Philips failed to make her point, as have you.
If you think ‘middle wealth’ is £500,000 to £2 million you are as deluded as Claire Fox. This is substantial wealth.
And the best time to charge a tax on homes is when their owner no longer needs one – when they are dead, in other words.
Sorry – your arguments just don’t stack.
Roger and Richard
The best way to tax unearned property values is an annual land value tax. It’s the location/land value which is increasing, not the bricks and mortar (these depreciate like any other capital item). As Ricardo pointed out long ago, land rent is a surplus (and hence can be taxed away at no cost to economic efficiency).
I think you missed all the points I was trying to make.
1) As a listener, I would say that Philips made her point very clearly. You misunderstood her or you chose to tell a little white lie to support your arguement. As you now admit, you made part of your living advising people how to avoid tax (legally of course).
2) I used the term “middle wealth” to distinguish the merely wealthy from the really wealthy. I am sure you will agree that there is a massive gulf between someone who owns a nice house and has accumulated 500k savings (and therefore may be worth 1m) and someone worth say 100m. My point was that under current IHT, the former is likely to pay a far higher percentage of their wealth in IHT. Do you think that is “fair”?
3) My final point was that if IHT is good because it is a property tax (your arguement), why not replace it with a real property tax as suggested by Carol above. At present it is neither an explicit property tax nor a fair method of wealth redistribution.
Roger
Respectively, the term white lie is offensive. Encouraging tax compliance is far removed from any form of tax avoidance. I do not think I misrepresented my position in anyway – or the possibility of an honest tax adviser does not exist. If you are aware of the language of tax you will know that tax avoidance is far removed from tax compliance.
I accept that its high ends this tax is more easily avoidable than for those whose main asset is their home. That may need review. It does not meean the tax needs to go.
Your defitnion of wealth is simply wrong. Eeven now someone with £1 million of assets is wealthy beyond 95% of the countries dreams.
I agree in principle with a cgt on domestic houses – but think it would disrupt necessary economic relocation. As such I am happy for the charge to accumulate and be levied at death.
Thank you for taking the time to read my last comment properly.
I apolgise if you find “white lie” offesive, but as an impartial listener my impression was that you dodged a valid question which spoilt an otherwise well argued case.
I am not particularly clued up on the language of tax and neither is the average Moral Maze listener. My guess is that Philips isn’t either. I am more than happy to accept your explanation that you misunderstood Philips’ question and I fully accept that 99% of tax advisors are honest (judging by the contents of this website you are one of them). I just find it ironic to hear someone who made a living from tax advice arguing in favour of a tax which (in its current form) has plenty of scope for legal avoidance if you can afford to pay a smart advisor.
You still haven’t directly answered either of my last two points from above. Let me re-phrase them to make them clearer.
1) Do you think a tax is fair if in practice someone with 1m pays a greater proportion of their wealth in tax than someone with 100m? You say that you accept that this tax is easier for the more wealthy to avoid. Does that still make it “fair”? How would you suggest IHT is reformed to make it “fair”?
2) You argued that you support IHT because it is a de facto property tax. I accept your view that CGT on domestic houses disrupts the market. But why not replace it with a wealth tax or a “land tax” as suggested by Carol in an earlier comment?
One final comment. You need to decide if this website is a one sided platform for your personal views or if you want to use it to encourage proper debate. If its the latter you should be prepared to argue your case rather than dismissing people as “deluded” or saying they “don’t understand” which appears to be your standard response to a comment you disagree with.
Roger
Three things:
a) I did not misundertsand Melanie Philips. I undertsood what she asked and answered correctly. You are persisting in misrepresenting the situation.
b) For that reason I am presuming you will also misrepresent any other answers.
c) No, I never pretended this was a place for all to hold a debate – it’s a blog. It’s about my views. You’re very welcome to run your own blog for your views. I allow others who disagree with me to place their comments here if they are not offensive. But I’ll be candid, that does not oblige me to agree with them or even suggest they are well informed. Often they are not, in my opinion.
And I’m entitled to that view.
Richard
a) We can agree to disagree on that one. I listened to the program and what I wrote was my impression of the exchange with Philips. Maybe other listeners disagreed. Either way you felt it worth writing a long post to clarify the point.
b) I will try not to misinterpret them if you attempt to answer them. They were simple questions and I was interested in your views.
c) Fair enough. Its your blog. I wasn’t asking you to agree with comments but merely suggesting that you don’t treat comments with such contempt when you disagree with them. If you can’t be bothered to address their points why bother replying or even posting their comments!