Friday, August 17, 2007

Inheritance Tax: Tory gain

The reaction from the opposition has been predictable, but I'm afraid the Tories are right about this one. Inheritance Tax should go, or at least be radically reformed, not necessarily for all the reasons John Redwood says it should but because, thanks to the phenomenon of fiscal drag, it has basically become a regressive tax that penalises people who by no stretch of the imagination can be considered rich.

I would be amazed if David Cameron does not put today's proposal straight in the Tory election manifesto, but it makes such obvious political sense that I would also be mildly surprised if some form of it does not also end up being purloined by Labour.

At the very least, ministers ought to consider some of the alternative options to outright abolition, such as exempting the main family home from the tax, or levying it at 20p rather than 40pc, or raising the threshold to £1m, so that it reverted to its original purpose as a tax only on the very wealthy.

Chancellor Alistair Darling today said the Government was "keeping the situation under review." Expect that review to have been completed well before the next General Election.

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Anonymous said...
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skipper said...

I feel sure this is a tax cut Gordon will adopt before he goes to the country.

donpaskini said...

Hi Paul,

I don't understand how this is a 'regressive' tax. Surely a tax where most people on lower incomes pay nothing, and people pay in proportion to the amount that they inherit is a progressive tax by definition (compare to, say, sales taxes).

Any of the measures that you suggest would involve a tax cut targeted at people who inherit between £300,000 and £1 million. Why are these people more deserving than, say, people earning less than £20,000 per year, or families who sold the family home to pay the care bills for elderly people?

MorrisOx said...

A model of common sense, Paul, refreshingly free from some of the jealousy, class hatred and plain control freakery normally on display whenever this subject is discussed (often by commentators who own expensive homes in certain chic London boroughs, let it be said).

Donpaskini, your argument is a circular one which stands up only if you believe that people who earn more are sitting on a pile of spare cash. There is an army of middle class strugglers out there who will, not very cheerfully, tell you otherwise, and the money they might inherit has probably already been earmarked for paying for their children's higher education, making up for the shortfall in their endowment/pension/you name it. And perhaps (whisper it) being able to benefit from the efforts of parents who have already been taxed once and tried to build up assets so their children and grandchildren might benefit.

At the very least, raise the threshold, which is now unrealistically low.

People who have worked hard should reap a benefit. Whatever one's views about IHT, it doesn't mean those on lower incomes should suffer. That's another subject entirely.

James Higham said...

Inheritance tax is an abomination in a sea of abominable Labour abominations.

Anonymous said...

The increasing sheltering of the rich and super rich from a progressive taxation system is something that I believe is generating deep and serious tension in the UK and increasingly will. This is not a envious whine of jealousy against the better-off; rather I just think that our political class seem to have lost the morality or idealogical coherence with which to ensure that the better-off carry their equitable share.

The latest ruse over the Inheritance Tax is a case in point. By all means argue the wholly legimate case that it has been one of Gordon Brown's stealth taxes that has in itself become, intentionally, a regressive tax hiting the barely well-off (although it does not impact on the truly not well-off). But this does not provide any justificiation to argue for abolition of the tax. The regressive aspect can be sorted by threshholds as you suggest Paul.

If some people want to absolve the rich and the very rich from their responsibility of making an equitable contribution through a progressive tax system then by all means they can do so - but the abolition argument should not be hoisted onto some spurious 'cause' to protect the less well-off. Abolition will hugely, unfairly and overwhelmingly benefit only one segment of society and that is the most wealthy.