Inheritance Tax » Tax Research UK

Osborne on Inheritance Tax

Economics, Ethics, Inheritance Tax 14 Responses »

Oct 012007

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.

Inheritance Tax – and why it’s got nothing to do with the family home

Inheritance Tax, Tax Research TV 11 Responses »

Sep 252007

I continue to be bemused by some arguments put forward by those who argue against Inheritance Tax. In particular I am completely baffled by the argument that an average home should be free of Inheritance Tax when almost no one who inherits a house moves into it. Let’s be clear: houses in the estates of deceased people simply represent cash in 98% of cases.

But I thought I’d explore this some more in a video:

Housing sees the British at their most innumerate and irrational

Economics, Inheritance Tax 2 Responses »

Sep 192007

Simon Jenkins wrote this in the Guardian today. His logic is sound. I’ve added paragraph breaks:

For half a century home ownership in Britain – termed a “right” by Brown – has been indulged beyond economic reason.

It has sucked savings out of the productive sector.

It has tied up pension money that should be helping the economy in the stock market.

Its tax reliefs have immobilised young people who, in most countries, remain in the more fluid rented sector until later in life.

It has led to mass hysteria with every price rise or fall.

Housing sees the British, their rulers and their newspapers, at their most innumerate and irrational.

This is why, for example, the argument that Inheritance Tax thresholds should increase because the owner of a ‘normal house’ might pay that tax is irrational. But politicians simply bow to the pressure.

And the young people in our country pay the price.

How much do people really care about Inheritance Tax?

Inheritance Tax 8 Responses »

Aug 242007

I spent some time discussing Inheritance Tax here last week.

Now there’s the resounding evidence that most people neither care about it, or think it has any relevance to their lives. 90% of all adults in the UK do not have a will.

If you were the remotest bit worried about Inheritance Tax you would. So they’re not. The evidence is clear.

The Tories have got this wrong. And people realise this is only a tax on a small minority in society. The only one’s that John Redwood thinks matter.

Inheritance tax: The nonsense the non-Taxpayer’s Alliance say

Economics, Inheritance Tax, Tax management 9 Responses »

Aug 172007

My media day continued. I did Radio Wales tonight with Matthew Elliott from what is called the Taxpayer’s Alliance.

He spoke complete nonsense. Like the speaker earlier in the day he thought inheritance tax was paid on small businesses. Where do these people come from?

Then we had the argument:

People don’t like this tax

Which is quite absurd. No one loves taxes. I don’t. But I do like what they do. So it’s an absurd question to ask if people like any tax, or not. Of course the answer will be that they don’t.

But worst of all is the usual twaddle he peddled that Inheritance Tax is triple taxation (apparently it’s income tax, stamp duty and Inheritance Tax). There are two answers to this:

1) There is lots of triple tax in this country. Take earnings form employment spent on alcohol: that’s income tax, national insurance, VAT and alcohol duty for starters. So we have quadruple taxation. So what? This spreads the tax base. That’s the basis of good tax design.

2) It so happens there isn’t triple tax on a house included in an estate charged to inheritance tax. First of all it’s the estate that is charged, not the house. So that’s only one tax. But even if the whole estate were a tax then a) the house will almost certainly represent an inflated value probably hundreds of times the total paid for the property if the deceased is of actuarial life expectancy. I recall , for example, my parent’s first house cost under £2,000. It must be worth more than a hundred times that now. If included in their estate now the increase in value would never have been taxed, the amount subject to income tax to pay for it would have been less than £2,000 and the stamp duty under £100. That’s not triple taxation. Given the generous allowances for Inheritance Taxation that’s much less than single taxation.

So let’s stop the misrepresentation and get down to the facts. The reality is that the argument about Inheritance Tax is about greed: people saying “I want to keep all the cash and want none of it to go to the State to create greater social justice and opportunity for those who might never be in the top 7%” (and that’s 93% of people, by definition). And greed is always ugly, which means it’s hidden behind lies and false arguments. .

Second, let’s be thankful that at least one tax might be slightly deflating the housing market. After all something has to do so because anyone under 35 now relies on having wealthy parents to buy a house. Nothing could crush the enterprise spirit more than this. What the Tories need to realise is that if every penny you have has to go into paying for a house, there is no chance of taking the risk of starting a business. You’re in the drip of death of a debt for life (and mortgage by the way means ‘grip of death’).

But despite this the Tories want to abolish the only tax that is doing anything to stop this economic and social madness. I despair.

And I’ll be candid: I distrust their motives. Because I don’t think they’re fools. And if that’s the case then they know all I’m saying is right. Which makes their presentation of their tax policy far removed from the substance of the policy they’re really pursuing, which is one of tax cuts for the rich of the sort Bush pushed through in the States at the start of this century, and which has created so much harm and not one jot of benefit there.

Inheritance tax: If you’re going to talk about it please understand it

Inheritance Tax 8 Responses »

Aug 172007

I’ve just done Radio 5 Live. We were meant to be discussing inheritance tax.

Scheduled start time was 9.00. On air time was actually 11.45.

Then I was pitted against Sylvia Tidy Harris, a woman best noted for saying no-one should employ women below aged 45 as they might have children.

She presented two scenarios where she said inheritance tax might be due. First case:

Two young people start in the City on salaries of £35,000 each and buy a house together worth £300,000. Immediately they’re chargeable to inheritance tax.

This is what’s wrong with this:

It’s not related to real life – a tiny proportion of people start on £35,000. The average wage is £27,000. This women is a fantasist to think this is normal.
These people would have a mortgage of maybe 100% of the value of their home. That’s offset against it’s value for inheritance tax. So net worth is zero. No inheritance tax due.
She interjected:

No, their parents bought them the house

Now we have a new scenario. They do have an asset worth £300,000. But it’s shared. So that’s £150,000 each. So there’s no inheritance tax. It starts at £285,000. And let’s also be clear. They’ve got to die first. Not likely.

So, we move on to her second claim. This is:

A person owns an ordinary house worth £200,000 and a small business worth say £150,000. It’s so unfair they have to pay inheritance tax.

Which is why, of course, they don’t owe any. All small unquoted businesses are exempt from inheritance tax.

In other words this person had no idea whatsoever what she was talking about and had the nerve to go on national radio and talk about it. I was furious. I fear it showed.

But is this the propaganda the Tories will resort to to get tax cuts for the rich? I think so. Sad, isn’t it?

The Institute of Directors – seeking to abolish capital taxes

Economics, Inheritance Tax, Tax avoidance, Tax management Comments Off

Feb 222007

Extraordinary headlines have been used to report the UK Institute of Directors’ (IoD) new report on capital gains tax and inheritance tax. For example, Accountancy Age has said:

The Institute of Directors has called for the threshold for CGT to be lowered, and for the tax to be simplified, to enable more tax to be raised.

That’s simply not true. The proposal is actually quite clear. With regard to Inheritance Tax it says:

Inheritance tax (IHT) has come to impose a significant burden on many families which do not have great wealth. It has come to be a tax on thrift, at a time when it is crucial to encourage saving, rather than discourage it.

It provides no evidence that IHT is a tax on thrift. Nor does it prove that there is a need for additional saving which might be subject to the tax (pensions, for example are not and that seems to be where the savings shortfall is). On CGT the proposal is as clear:

The main simplification of CGT is to replace the current two scales of taper relief, under which the taxable proportion of a gain diminishes as the period of ownership of the asset increases, with a single scale. Crucially, if an asset had been owned for long enough, the gain would not be taxable at all. Thus no computations would be needed for assets that were held for the longer term. The proposal is to tax 100% of a gain if the asset has been held for up to a year, 90% if the asset has been held for one to two years, 80% if the asset has been held for two to three years, and so on down to taxing none of a gain if the asset has been held for more than ten years.

Let’s be clear. What that’s saying is in the short term there are no such things as capital gains, there are only profits from trades. That seems entirely reasonable. But the obvious corollary is that real capital gains should be tax free. In other words, in all but name they’re saying capital gains tax should be abolished as well, with gains short term gains being considered trading profits. This is unsurprising. Their conceptual framework for capital taxes is this:

Objective 1: to make a reasonable contribution to total public revenue.
Objective 2: to avoid an imbalance between the taxation of returns in different forms, for example income from investments and capital gains on investments.
Objective 3: to accomplish objectives 1 and 2 simply.
Objective 4: not to discourage saving too much. Savings by individuals mean that they can avoid being a burden on other taxpayers later in life. Saving is an act of social responsibility, as well as benefiting the saver.
Objective 5: not to discourage investment too much. People should not be put off investing in businesses which have a prospect of doing well and delivering significant returns to investors by the thought that if those returns materialise, they will be reduced by a large tax bill to a level that is not commensurate with the risk taken. The productive use of money in the private sector is crucial to economic growth.

Plain straightforwardly, that’s wrong. First of all, point 4 is simply incorrect. The savings so described are pensions, and are never subject to capital gains tax or IHT and do enjoy generous income tax reliefs. The only issue on IHT at the moment is that some people are paying tax when they sell the family home as a deceased generation no longer needs it – which means the value is as much open to charge as any other asset and serves to limit the absurd growth in house prices which are already fuelled by capital gains tax relief in this area. Second, point 5 is wrong as existing rules on CGT are much more generous to genuine risk taking investment than this proposal, and IHT is not charged on investment in genuine risky enterprises. So the claims made are rhetoric, not fact.

That’s true of this objective statement as a whole. It is, in fact, simply wrong. Capital taxes exist for the following reasons:

To tax wealth which otherwise avoids any form of taxation, so broadening the tax base;
To ensure that the tax base is progressive;
To provide for the reallocation of wealth and the reduction in the gap between the rich and the poor – which is enormously socially destructive;
To prevent leakage from income tax;
To raise revenue.

The IoD is dressing up a straightforward desire to remove tax on the wealthy as somehow having a logical structure and philosophy behind it. Their arguments are hollow. Their naked greed is apparent. Their indifference to passing the tax burden onto those less able to bear it is noted.

Perhaps the report’s cover says all that needs to be known about the IoD’s real thinking. Tax is not a bomb that threatens people. Tax is what underpins the social structure of our society and provides people with the opportunity to thrive.

Stephen Byers does it again

Inheritance Tax Comments Off

Sep 082006

Stephen Byers has responded to Polly Toynbee’s article in the Guardian newspaper in which she attacked his plan to abolish inheritance tax, on which I have already commented. And he comes up with a classic argument for abolishing inheritance tax. He says:

"Toynbee claims that, at a time when City dealer’s bonuses are soaring and mid-ranking bankers are due a £1.5 million top up on their salaries, it is vital to keep one of the few instruments that spreads wealth more fairly. Yet she must know that it is precisely the super rich who, along with the well-established landed gentry arrange their financial affairs so that, quite legally they avoid paying (inheritance) tax."

So, Byers (and we can take it as read therefore that Blair agrees) thinks that the existence of tax planning is sufficient to negate all attempts to impose taxes that might redistribute income or wealth, an argument to which we previously knew George Bush subscribed but which now appears to have permeated the New Labour camp. Goodbye social justice then in the face of wheelers, dealers and dodgers; no mention being made of the possibility of reforming the tax to tackle such issues instead.

Far from it in fact, for Byers goes on to enjoin:

"Toynbee should listen to the informed view of Chris Wales, a former adviser to Gordon Brown on tax policy, who says that inheritance tax has a negligible effect on the redistribution of wealth."

I’ve mentioned Wales before as well. Byers forget to mention in his article Wales’ former service with Andersens (where no doubt he did his bit to prevent wealth redistribution, that being the mandate of such firms). He also forgot to mention another chapter in Wales’ career which has relevance in the context in which Byers wrote. When he left the Treasury Wales joined Goldman Sachs, one of those banks paying bonuses of the order indicated. Could it just be that Wales has a perspective on these issues that is, shall we say, a little out of the ordinary given his former employments, and that the selective mention of his work as a former adviser to the Chancellor may be spin?

Whatever it is, Byers proves quite convincingly why he is out of office, and why I would not be surprised if New Labour follow him.

Inheritance Tax – pleased to stick out from the crowd

Inheritance Tax 1 Response »

Sep 052006

Accountancy Age covered the Inheritance Tax issue whilst I was offline. I note they say that there is an increasing body of opinion mounting against the tax, and that I seem to be the sole voice they could find in favour.

Well, there are occassions when it is good to stand out from the crowd. This is one of them.