As the Guardian reports this morning:
Proposals by the UK government to stop collecting information showing how the wealthy pass on their assets from one generation to another have been condemned by the Institute for Fiscal Studies, a leading tax and spending thinktank.
The IFS said Britain was in danger of allowing a misleading picture to emerge of its richest families, the top 1% whose wealth is at least £1.4m including the value of their home, that underestimates their wealth.
I share the IFS' concern: this is a wholly unjustified move.
The government's response on this issue is inadequate. Its argument that the wealth surveys undertaken by the ONS already addresses this point is insufficient to justify the abandonment of HMRC data. What is instead required is a thorough investigation to explain why the ONS think UK asset worth is substantially more than that declared to HMRC and what the consequences of this are.
I last looked at this in detail in 2014 when I noted in my report on the tax gap for PCS (page 33 here) that the ONS reckoned UK national personal wealth at about £5.5 trillion whilst HMRC thought it much lower at £3.5 trillion. Having discussed all sorts of possible reasons for this gap to mitigate the resulting tax consequence as much as I might I still estimated a tax gap, whether from evasion or avoidance (and in all likelihood a mix of both) from this cause that amounted to £6.6bn a year, a sum considerably greater than that actually paid.
HMRC deny this, of course.
And now they are not going to even look at the issue.
How convenient for those with wealth.
And what a clear indication to the turning of a blind eye by HMRC to an issue that I believe costs much more than benefit fraud each year.
This is a genuine scandal. It's about vested interests, capture and irresponsibility. It's about official accountability across the spectrum of f society. It's about austerity and the tax gap. And it's about inequality and how to tackle it. But most of all it's about HMRC's management saying on behalf of the government that they do not think that these things matter.
Let me assure them, they do.
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Oh come on those worth £1.5 million while indeed are richer than most they can hardly be described as super rich. Unlike Italy with only a 4% rate and 800k per beneficiary allowance, so for those who talk about inequality well how about the current nill rate or combined nill rate of both couples could be what each beneficiary is entitled to tax free? But no that would in all cases cut revenue no one would lose as with almost all inequality moves just end up dragging said ‘rich’ person down and the disadvantaged still are. I have said it before if it was another country such as even greece despite a perilous situation pitiful rate of 1-10% or Norway before abolishing 15% you would have a point. But given the cost of housing and living in this country it kicks in at to far high rate. Given the insecurity of the job market and tuition fees (which when time comes wont be written off I bet). I think it would be it wouldn’t necessarily be bad if the kids of the older genarations could keep more(its not a given the better of kids are doig great). Instead what I see is a lose lose, with the state going after the wrong people or if they get infirm the would be beneficiary’s lose more because social care is not covered.
Respectfully, I think £1.5 million is very definitely super rich
1.5m is a family home in many parts of London. It is quite possible that a middle ranking professional couple could live in such a house, particularly if it was bought 40 years ago. It most certainly is not super rich.
If a professor was in such a home they would be very rich
Why the denial?
These people are super rich? Lmao in this world of billionaires and people worth in the scores of millions your going to put those worth £1.5 mil in the same bracket? If this was 1983 where a average house in london was just under 40k perhaps but now it would barely buy 3 houses now compared to 36ish in 1983 prices. That is a huge difference. But hey ho least some rich footballers probably could ‘gift’ out of income the £1.5 mil per year and is immediately exempt and those whose entire lifes work and inflationary price increases could make them worth that much and must be clobbered I suppose.
Yes, they are rich
And the gain was wholly untaxed
And if we are serious about tackling the resulting inequality we have to tax it
I wish I was that not rich.
I am one half of a middle-aged professionals couple .
But we don’t live in London. Like many!
We are almost certainly in the UK’s top income decile – but not millionaires.
Life’s failures, obvs! 🙂
When I were a lad Inheritance Tax was regarded as A Good Thing by very many people and necessary to tax policy. But as the better off twigged where the loopholes were and clever lawyers pointed them out to their many clients, it all got very untidy. Paying the tax became less of bad luck (or the fruits of good luck in a way) and more lack of planning to unload before time took its toll. In other words now it is for many an optional tax. But our major parties are scared of reforming and revising the taxation of wealth for a number of reasons. It is a mess and becoming messier.
Issues I address in the Joy of Tax
Most ‘wealth’ is actually land value – and we could recoup it all for public benefit with LVT. But I’d still have a self-assessment wealth tax over £1m when LVT has done its job. I’d also tax floor space over, say, 300 sq m (including swimming pools and stables, etc.) on a self-assessment basis. IHT should, of course, be levied as unearned income on the beneficiaries.
From a purely political perspective, there is an inherent dislike for very large numbers of “middle class” voters who are lucky enough (usually through their houses) to have accrued enough value to pass onto their children and potentially see them incurring inheritance tax. Especially if they have also worked hard and saved additional funds for their retirement and children.
As a house is also a potential home for their children, I can see a good political argument for excluding all first homes from inheritance tax irrespective of the value (not including the value of additional land surrounding the property). All other assets could then be charged at a progressive rate of inheritance tax as this is pure unearned income for the inheritor, with a punitive rate for all offshore funds/trusts/companies/dividends etc…
From a purely political perspective, shifting the burden of all income and wealth taxes from those of less than “super rich” means would be a vote winner for the majority of the population. Elections are entirely a numbers game and the left have just got to learn that they can’t be nice to everyone and need to decide who’s side they are really on.
The Tories have only survived in my view by being seen as the “low tax” party and positioning Labour as the “high tax” party – i.e. putting financial fear into ordinary working people. This has an obvious appeal and there is no point in trying to overcome a very natural human desire in the mass population to pay less tax and hang onto the little you have got.
In reality, the Tories are really the “low tax” party for the wealthy and corporations, and the vast majority of workers are paying through their consumption for the low taxes of the rich and powerful.
The homes argument is absurd
Most people die in their sentries and eighties
If their children have not by then sorted out a home there is a seriously dysfunctional family likely to be in existence
The ‘family home’ argument is bankrupt as a result, some special cases apart
Then in my view you fail to understand the simple politics of this for most ordinary people Richard. Those elderly homeowners are voters (and many are wavering Tory or Lib Dem voters with tax, pensions and living costs upper most in their minds). They will increasingly be watching their children struggling with the costs of surviving in this form of “dog eat dog” economic system (especially with rents and mortgages forming the largest part of their living costs).
And so any political party that promotes inheritance tax on the family home, which is in most cases the only form of substantial wealth that elderly people are likely to be able to pass on to their offspring, is in my view doomed to fail.
Your economic argument may well be sound, but politically it is suicide.
But it’s precisely because we have no tax on homes that this situation exists and it’s not my job to argue for the perpetuation of that injustice that you describe – which is what tax free homes is and would do
Actually IT is the most unequal tax of them all. As previous contributors have said, it’s by a quirk of fortune your estate is worth more than £1.5m because you happen to own a home in London for 40 years. Vast majority of people have saved their money, worked hard, (paid tax on it), invested well and done the right thing. The low levels of IT when it has to be paid are just wrong. ( no- one has an issue about paying it, just the entry level when you do, is just too low). And btw the estate has to be disposed off or settled within 6 months before HMRC want their cut and that can be devastating especially for more complex estates or worse still, disputes.
If you want to be serious about this debate you need to see what the seriously rich do (off shore etc) before you have a pop at ordinary people who do the right thing, especially at the lower levels of IT.
If you want to engage here please raise your game
I accept IHT is abused by the very wealthy. I woukd actually abolish the tax and replace it was capital gains tax charged at income tax rates on death, including in residential homes
But for now we have IHT and abuse by some is no reason for others not to comply and what you seem to think an unfair charge on those who have literally generated a fortune by the accident of owning a home I consider to be the beneficiaries of a wholly untaxed returns from land, much of which will have happened because of state subsidy through providing infrastructure and not currently taxing homes
So it is a social necessity to charge such tax