What caught my eye this week.
Having made a case for higher inheritance taxes (IHT) in the past, I could have warned Abi Wilkinson to ask for danger money and a safe house when she wrote her piece for The Guardian this week.
Wilkinson writes:
Morally speaking, people who stand to inherit large sums haven’t done anything to earn that money.
An accident of birth placed them in a comparatively wealthy family and they’ve benefited from that their whole life.
This is the argument I make, too. People immediately start with straw man retorts – “Oh, so should rich children also not be allowed private tutors then?” or “Oh, so should rich children also be forced to live on Pot Noodles and never see a vegetable then?”
But I think that’s because in a world where we’ve decided to have a State and to fund that State with taxes, you have to go absurd pretty quickly to justify generous rates and reliefs for people who are (a) dead or (b) who did nothing to earn the money you are taxing.
These are taxes, remember, that rich kids not paying mean someone else has to pay. Maybe me or you? Maybe your kids, from their squeezed wages.
I understand – and was reminded by some of the nearly 2,000 comments on Wilkinson’s piece – that critics of inheritance tax (i.e. almost everyone) don’t see it that way.
They see 100% IHT as the State taking money from hard-working people who did the right thing and worked and saved all their lives and who are now being taxed twice. And they see the State giving it to indolent dossers via welfare and other benefits. (I paraphrase.)
Whereas I am full of admiration for people who work hard and save all their lives, but I see them as irrelevant once they’re dead. I see their children getting a freebie for doing absolutely nothing, on top of the other benefits having better-off parents gave them. And I see the victims not as the dead person in the grave, but rather the everyday people on minimum wages – or heck, the middle-class JAMs – who have to more tax on their incomes so that rich kids can get more money for free.
I’d tax inheritance at say 75% just because it’s the most moral tax. But I understand many of you feel differently.
Even my mum does – and I regularly urge her to spend the lot!
From Monevator
Five reasons why you’ll love index investing – Monevator
Do you have a money mind? – Monevator
From the archive-ator: Have you seen our huge link list of money tools and calculators?
News
Note: Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber.1
Report finds UK housing market still reeling a decade after the financial crisis – Guardian
Crackdown on (crazily) unfair leasehold practices confirmed – UK Gov
Santander cuts back lending amid Bank of England concerns over consumer debt – Guardian
The great rotation from bonds to stocks might finally be at hand – Bloomberg
Can you afford to live to 100? [Search result] – FT
Products and services
Some tracker funds cost ten times more than rivals [Search result] – FT
Charter Savings Bank’s new table-topping cash ISAs pay up to 2.15% – ThisIsMoney
LendInvest’s five-year bond pays 5.25% but definitely comes with risks – ThisIsMoney
‘Insta-bragging’ could invalidate your home insurance – Telegraph
Extra-long mortgages push up the age of borrowers [Search result] – FT
Comment and opinion
Shame, status, and the American Dream – Bason Asset Management
Alan Shearer has much to teach us about inflation – The Value Perspective
Fund mismanagement – SexHealthMoneyDeath
What’s really putting the brakes on the UK housing market? [Search result] – FT
Too much enthusiasm in the markets: Howard Marks’ latest memo – Oaktree Capital
Financially independent at 43 and roaming Europe in a motorhome – The Escape Artist
‘Disgusting and astonishing’: how do the UK’s top 1% view tax avoidance? – Guardian
The FTSE 100 has inched up towards fair value – UK Value Investor
Thought provoking interview with economist and Nobel laureate Myron Scholes – UBS
Why banks could prosper in the next stock market slump – Telegraph
Are solar funds paying 6% too good to be true? – Telegraph
The worst landlord horror story [US but interesting] – Financial Samurai
Brexit
‘A bit of me is dying. But I can’t stay’: the EU nationals exiting Britain – Guardian
A British negotiator says Brexit will be far worse than anyone expects – Independent
Off our beat
Why interviewing prospective new employees is futile – Medium
And finally…
“The word ‘risk’ derives from the early Italian risicare, which means ‘to dare’. In this sense, risk is a choice rather than a fate. The actions we dare to take, which depend on how free we are to make choices, are what the story of risk is all about. And that story helps define what it means to be a human being.”
– Peter Bernstein, Against The Gods: The Remarkable Story of Risk
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Yet both Norway and Sweden have abolished IHT in the last few years…
Hehe – I hope you have your chainmail at the ready. There’s something in the human condition where people believe that a bit of them really does trancend death and lives on in their children, so it really is a bit of them being taxed twice. And that belief is not subject to reason 😉
@ermine — Yes, does seem almost old world mystical. Incidentally are you still blogging? Nothing new for what seems like months! 🙂
Oh boy are we at opposite ends on inheritance tax. I have indeed worked hard and intend to leave it to my children and a few charities. I view that as part of my life (not as you wish to pretend as somehow part of my death). As for the argument that we decided to have a State so should happily give our estates to it, that may be a common view in Communist states but it is an uncommon view here.
Frankly, I’d rather die than leave my money to government, whatever that is. Seriously, we really are at risk of the process of taxation becoming simple theft by one section of society from another section of society. And if that is how it is going to be, we may as well do away with the half-polite veneer of “government” and go back to hand-to-hand fighting.
@Steve — Why is income tax not theft but inheritance tax is? I completely understand the argument that says “all tax is essentially theft”. I think that’s consistent, intellectually speaking, though I don’t agree with it. But why is the taxing of someone who is dead theft or who just got given it theft, but the taxing of someone who just spent 40 hours in the past week working for their money not theft? Genuinely don’t understand the argument, though it’s made all the time so clearly I’m missing something.
@Hospitaller — I don’t believe I’m pretending anything. You’ll be dead. Maybe you’ll live on somewhere else — a discussion for another kind of blog — but your work/life here will be done.
That’s science. If you want to give it away when you *are* still alive, do it when you’re alive. 🙂 As for your other thoughts you’re of course 100% entitled to your point of view, I’d only be repeating what I said to @Steve.
I know I’m in the ultra-minority on this and it bemuses me, but hey ho, so were Darwin, Wilberforce, and Galileo in their day… 😉
I have to agree Re IHT
if the goveenmemt offered lower taxes in exchange for keeping it all when im gone, id take it in a heart beat, i wont be spending it where im going anyway.
would it be nice to pass on something to my kids ? yes but id rather have it now to enjoy with them and hopefully bring them up properly so they know how to look after them selves.
I suspect that my view of the role of the state in our world is rather different to yours. I am in favour of state involvement in providing armed forces and infrastructure. I see no role for the state in heath provision, education, state pensions, social housing or other forms of social security. All these latter can be dealt with by individuals including the large charity sector. So I am expecting that the role of the “State” in future will be massively smaller than today. Almost needless to say, I would regard the kind of approach to IHT which you are endorsing (if the article is not indeed a wily late April Fool’s) as going in exactly the wrong direction.
By the bye, you cheerfully say ” If you want to give it away when you *are* still alive, do it when you’re alive”. That sounds like an nice idea but you already know that we cannot do that -because there are hordes of rules imposed by the State to stop us.
Also, people make wills precisely so that when they are physically dead their wishes live on. So they are never just dead and gone.
@Steve — Why is income tax not theft but inheritance tax is?
@Investor I was not making that distinction. I see both as forms of theft.
Where you are wrong is that inheritance tax doesn’t tax the dead, it taxes the survior… Let me illustrate this with a small example. A person lost their partner years ago and has four children. That person decided on their deathbed to distribute wealth as follows:
The first child is employed as a consultant for an hour receiving a third of the wealth as the hourly rate.
The second child is gifted a third of the wealth.
The third child inherits the remaining third of the wealth (let’s ignore any legally required inheritances here)
The fourth child has won the lottery the day before winning the equivalent of a third of the wealth.
If you look at income or wealth of these four persons, each of theirs increased by the same amount. I ask you why should they be taxed differently?
You gain income, you pay taxes. Whether that income is from labor, capital gains, inheritance, donations, investments shouldn’t make a different.
I agree that inheritance shouldn’t be tax-free. It’s not double taxed, because the one who inherits never had the money before and never paid taxes. But saying the government should get 100% is plainly absurd. If you truly believe that I hope you gave any pictures of your parents or anything that belonged to your parents to the government, because anything else would be tax fraud.
I work in tax and for me I agree 100%. Assuming we need to raise x amount of tax then i would much rather it come out of my estate than during my life. Particularly squeezed early years with new careers, family etc
I also believe a high IHT would help aid social mobility for those who don’t have the luxury of money being passed down generations.
I 100% agree with this article
How can it be right that a man who earns £50k a year for 10 years is a higher rate tax payer yet his neighbour can inherit £1m off his parents and pay nothing. This does more to contribute to an unequal society than anything else.
I would make inheritance tax 75% and put the threshold at the average yearly salary. There is no finer time to tax me than when I die, and my children can earn their own money.
Why stop at a 100% wealth tax at death? Why not start decades earlier, such as a 100% wealth tax every year like communism. The time delay does not make the tax moral. I argue any death tax destroys incentives, and hurts multi-generational families. A family farm or a business cannot be passed down to the next generation since the tax man must be paid by liquidation. I suggest viewing “Milton Friedman Redistribution of Wealth and the Death Tax”. http://www.youtube.com/watch?v=km9OCw3f5w4
I guess it boils down to ownership. If an assets stops being mine to decide it’s fate when I die, why bother with the distinction of death?
No one needs more than 100K so the state could argue that it’s acceptable to cap a persons wealth at that figure and take the rest.
Moreover it will be fundamentally unfair, just like the rich don’t pay tax today ( including inheritance tax) neither would they pay 100% tax on death either. Take for example Richard Branson he is very rich, but rately owns anything, companies which he controls do and companies don’t die. Ownership of the company can be obscured with trusts and be registered in foreign countries, beneficial ownership can be moved effortlessly through the generations.
I guess you need to think about the behaviour and consequences it would drive. First of all, are the allowances still in place? Is life insurance included in this tax? Are pensions? If not, what is stopping people from using their money today to buy large whole of life insurance policies to avoid the tax? Does a spouse still inherit without having to pay the tax?
I am quite happy paying extra into my pension and having life insurance knowing that I will have a comfortable retirement and if I die young the money would go to my wife and small children to sort out things like the mortgage. If I know all of that would be taxed away in the event of early death, I would probably spread the money around wife and children, spending the cash now and maybe not even bother buying a house (not a good store of wealth anymore – esp if the spouse no longer gets to defer IHT). Would anyone want a mortgage? Would any bank offer one? Will the state pick up the peices of their lives?
If I go so far as to live for today, and spend all I earn, won’t that add a greater burden on the state to provide for me later? Does it end up being a false economy? Then again, does anyone really plan their life around IHT?
If the allowances are gone then the poor are stripped as well, and they are much less likely to have savvy financial planners.
Of course the properly rich will probably all just up and leave, no doubt relocating their HQs somewhere more tax friendly. Or structure themselves to be never ending businesses.
I guess finally, why should my giving away money in life be tax free (outside certain restrictions) but giving it away in death be taxed? Shouldn’t both be taxed exactly the same?
I’m reading talk about how tax is appropriation, or about how IHT destroys incentives, or even how we shouldn’t have much of a State at all. Which is all fair enough.
However it completely ducks the question, because the fact is we live in a State that does exist, and we’re discussing a requirement to raise revenue for that State via different methods, and specifically asking why IHT is more unfair (or not) then say taxing income. (Or, if you like, why it produces fewer bad incentives, or similar metrics).
Whether States should exist and have the ability to raise (coerce) revenues from citizens is an interesting discussion, but it’s vast and for another day really.
Nobody is putting up a convincing argument saying: “This is why it’s better than my son who did nothing to earn it gets £250,000 tax-free, while you had 50% all-in (say) taken off you every week via your PAYE and NI last year while producing goods/services that people needed and wanted.”
That’s the question. Not whether we should be living in some survival of the fittest Ayn Rand paradise. That’s a theoretical discussion for another day, IMHO.
@Richard — Fair summary of some of the problems. I agree with you about gifting, too, maybe in theory that should also be taxed at IHT rates. (I’m not saying you think it should, rather agreeing it’s logically consistent).
I think the last time we discussed this on Monevator I was persuaded that I was morally right about IHT versus income tax*, but that practically it was just too hard to implement. I can see that happening again.
Still, one day we couldn’t fly, and now we can. Who knows how the technology / governance of taxation will evolve.
(*IHT versus income tax is as I say is the critical question in my view, not tax at all versus being a high-tech hunter-gather living on our wits in a no-tax State-less society or some feudal prince (or more likely for the vast majority, a pauper) in a more modern incarnation of such. Those are red herrings in *this* context).
Sometimes perhaps a fiction can be the truth. Some believe in life after death and are persuaded to live their lives in a certain way because of that. So the fiction has a real effect on behaviour. Maybe same with inheritance. The opportunity to leave something behind gives us an incentive to continue, and not just to say stuff it I know how this ends.
If the State was to take 100%, that makes it clear the money was never really yours in the first place, just taking it back mate. So I think logical consistency should take second place to behavioural pragmatics.
Nobody is putting up a convincing argument saying: “This is why it’s better than my son who did nothing to earn it gets £250,000 tax-free, while you had 50% all-in (say) taken off you every week via your PAYE and NI last year while producing goods/services that people needed and wanted.”
If you consider the father and son as unrelated individuals in the same state, then this is clearly unfair. But they are not unrelated individuals. The Milton Friedman video referred to by @Robert talks about the unit being the family not the individual. Viewed from that perspective 100% IHT is a step away from families and towards making the state one big family. The state has a role, but so does the family. Where to put the balance is the real debate.
All taxation distorts the market its applied to, 100% IHT would have the following, mostly undesirable effects
1) The explosion of immortal companies and trusts
2) Movement abroad to lower tax countries
3) Many couples have uneven wealth because of child-rearing obligations, you’d lose that redistribution mechanism
4) More poor single parent families
5) Collapse of saving for old age
6) People giving their wealth away earlier to keep outside the 7 year rule, and being disappointed that the care they expected in turn did not materialise
Most of these will increase the burden on the state and reduce its tax base. If there is a strong incentive to die with no assets, many will overshoot and be reliant on the state earlier. I think your Laffer curve tax on IHT would not yield enough to compensate for the social problems.
I guess gifting tax vs IHT is really one of practicality. IHT occurs once, at a fixed point in time when the deceased finances are in effect frozen. HMRC would probably not want everyone ringing up every time they gave their kids £5 pocket money (this is where allowances would kick in). This is probably why we have the high allowances in the UK, to keep tiny estates from clogging up the system. Pretty sure HMRC would prefer to take tax via PAYE given the choice.
Are you morally right? To an extent yes. But then would you give preferential treatment to your friends and family over strangers? Do you have things of sentimental value you would want to pass on to someone? Some of this is human nature.
Perhaps the state should just confiscate everything and redistribute it back out to those it deems worthy. This way it could ensure investment in useful, productive industries, ensure a quality of life for all etc. The usual problem here is human nature tends to get in the way a little. We need an all powerful, rational, uncoruptanle computer to manage it all!
Just quickly on family’s being a special unit, versus individuals, I’d say this is seductive in theory/language, but I don’t believe our society is constituted that way. (Perhaps it still was a few hundred years ago). In the absence of specifically contracted legal obligations, familial ties don’t work that way anymore.
If the aforementioned adult son defaults on his mortgage, for instance, the mortgage lender has no recourse to his parents. If he commits a crime, again the State can’t seek redress from the parents. If an adult daughter develops a chronic and debilitating disease requiring long-term care or medical treatment, the State (/NHS) doesn’t first ask the parents to pay.
I could see an argument saying that before children reach majority there should be no/low IHT. But as we’re currently operating, I think adulthood clearly marks a threshold on that sort of functioning unit these days — except in the special case it seems of giving children massive amounts of money tax-free.
Even between married spouses where even I’d agree there should be no IHT at all, you see anomalies. I was flabbergasted a couple of years ago when a friend’s father died with credit card debts, and when he called the banks concerned they just wrote off the debts, rather than trying to get them repaid by his mother. Obviously no complaints for my friend and his family getting this news at a time of grief, but it didn’t seem particularly fair to me. But that’s a side discussion I suppose.
@John B — Some interesting retorts, though I’m not sure I agree with them all. For example I am saving for my old age, despite no heirs. (I’d agree it will reduce saving for ‘life after death’ distributions!) Immortal companies is a big one, another of those practical issues. I don’t really understand 3&4, especially if taken in the round (i.e. the State would be richer, theoretically, so more provision for poor single parent families). 6 is a legitimate issue, but not sure the State should be legislating in such areas of human disappointments and frailties. I’d prefer old people bought annuities/something similar, with their money, and that familial care and attention was mainly of the non-financial kind. That’s in short enough supply, as anyone who has ever visited the average old age care home will attest.
There’s the rub. Global communism is the fairest system, ‘from each according to their abilities, to each according to their needs’, but we know that doesn’t generate the wealth that capitalism does, where human traits like greed/competitiveness and family/tribe loyalty can be exploited, ultimately for the good of all through a re-distributive tax system. But that tax system must leave incentives for these human characteristics to work, so no 100% tax is ever a good idea, and why progressive taxation and allowances exist.
I think that inheritance tax should be abolished completely along with income tax, capital gains and VAT. These should be replaced with a land value tax purely taxing the possible rental value of all land in the UK. This would be said by all land owners. In that way if the inheritance involves land the recipients can choose not to pay tax on an ongoing basis by selling the land or keep it in the family and pay their dues to society by paying the tax for being fortunate enough to now own some of the limited land nature has provided us.
@Mark Gahagan. Now that is really interesting, it seems fair, balancing the incentive to create with the opportunity to do so and simplicity overall. (which makes corruption and ineptitude more difficult) You’d have to rip the power out of the cold dead hands of the elite though to institute this change from the current status quo of incremental kleptocracy favouring those born with advantage. Not much has changed with respect to land since the Normans ‘redistributed’ any wealth they came across into their own pockets; then ensured through law that their offspring would safeguard the result of that theft into perpetuity.
Don’t you think that if IHT was 75%, people would spend / give away their money before they died? I know I would. You would raise less money, not more.
The only way to get people to like taxes is for the government to spend them on things people approve of. Which is not easy.
I can’t get past this line:
“that’s because in a world where we’ve decided to have a State and to fund that State with taxes”
Its actually the premise of all the rest of your argument, and if I disagree with it, I think this leads us to a different set of options.
Well, when did we decide? I don’t think I did! It seems to me that I was born into this system, and then fully indoctrinated into it (‘its the worst system except for all the others’..). Where are the options for individuals who don’t want a state at all? How do I opt out? Of course, that’s a rhetorical question in this society, as I cannot opt out – I can only vote in order to get some left or right wing crooks, who then get to force their psychopathic opinions and laws on everyone else, with our blessing! For me, statism is a system of control, based on a big lie – that government has rights individuals do not have (you wouldn’t accept my taking your money, but its ok for a big gang to do so), and that by educating us (indoctrinating us) we actually want to maintain our shackles!
Back to your topic, on the IHT issue, as an anti-statist, in my ideal world, of course I do not call for the state to take 75% or 100% of my inheritance. In a world with no state we would not pay any taxes. To imagine this, think of Lord Grosvenor and David Cameron’s trust arrangements – but without the subterfuge and the availability to all.
The 3 pillars of capitalism are Labour, Land and Capital. You can’t tax one and not the others, as it would distort the economy too much. This is why we have a wide range of taxes, to spread their effects across the board. And you want to tax things with low collection cost and little opportunity for avoidance. Taxing gifts would not be good on either count.
Theres an alternative way of looking at this, and that is we pay 3 different types of tax:
1. State tax, IT, NI, CGT, VAT, etc.
2. Local tax, Council Tax
3. Family Tax
Each tax effectively redistributes wealth from the individual, just among a smaller bunch of people as you move down the list, i.e. state, local area, family.
When you’re alive you pay those 3 taxes in a certain ratio that is generally acceptable, i.e. in a way that makes you grumble but hopefully not riot.
The beauty of the family tax is that it requires no state intervention as it is so well aligned with human nature, it is self-administering (bar a few edge cases like child support). But have no doubt that it is a tax, you are simply coerced by your selfish genes rather than HMRC to pay it.
As the state, your local council and your family still exist after your demise then why not simply pay IHT in the same ratios to those 3 tax recipients as you do when you are alive?
Thats roughly what happens I think so in the spirit of Chesterton’s Fence maybe it should remain that way?
Makes sense to me…
In the OP’s spirit of generating contentious debate, there is a strong argument that TI, in arranging his affairs such that he pays no family tax, is a morally abhorrent tax dodger? I certainly think there is a rational argument to be made supporting the claim? He will almost certainly benefit hugely from those who do pay such taxes assuming he doesn’t die tomorrow and give 100% of his vast portfolio back to the state.
I used to think that too. Indeed, what better time to pay your taxes than when you are dead? My mind is now changed though. It is too easy to avoid. (The Guardian itself should hang its head in shame at its tax avoiding status). Only the ‘little people’ pay it – which actually holds back overall social mobility.
Instead, I would get rid of both inheritance and capital gains taxes and replace with an annual Land or Wealth tax. Just think of all the efficiencies – you could get rid of many tax avoiding Trusts, ISA’s, pensions themselves and lots of accountants wastefully employed to work the legislation to avoid tax. No one, not the government, employers nor pension companies have covered themselves in any sort of glory in relation to pensions. Their longer term nature means they are easily plundered or unreasonable promises dished out. Just let there be a decent base level State Pension for all and let people save to add to it for a decent retirement.
Simplicity is the tax avoiders enemy – and that is what I propose.
Perhaps people would be happier with higher IHT if there as a choice to assign to the State or chosen charities?
Easy collection of tax is somethig I strongly support. I worked on the council tax delivery (AKA the poll tax). It replaced the rates and none of us involved were keen. That said, being in the software business the governments endless specification ammendments was Xmas coming early, we hit councils for constant change requests, license to print money at the tax payers expense. That rather softened my opposition.
The real issue however was collection. Rates was based on houses and houses didn’t move and belonged to people who were good citzens, by and large, hence collection was cheap and the amounts written off for non-collection noise. Contrast this with the poll tax, collection very expensive and the collection rate far, far worse.
In my mind I ended thinking tax based on property was easy to collect, but that left the problem of a fraction of the population paying for what all voted for. In the end only those that pay taxes, in my opinion, should have any say in the running of the country pay no tax – get no vote.
Bemused by the article and don’t really follow the logic.
So as things stand when I am alive I am entitled to call my money mine. I can give this to charity or fund a post-colonial war. Are we saying that in death the state should have the money because it spends money more fairly/morally than an individual?
Still can’t see an argument for removing the incentive to ease the life path for your children, certainly no argument which says this is always a bad thing and should be prevented.
If we were just a bunch of people eking out an existence in the edge of the forest and, through hard work, I build a semi-waterproof shack for my family. On my death should the shack be torn down and the wood distributed to the others who hadn’t managed to build shelter as it wouldn’t be fair otherwise?
So government hands out money as benefits. It takes this money from current and future taxpayers. I leave money to my children. The latter is a ‘freebie’, but not apparently the former.
Is the real question acceptance of the concept of ‘ownership’?
One question: are you a parent?
Isn’t the end result the same though? Assets that were probably doing nothing productive are suddenly available again. Whether the government pays a doctors salary or the inherritor buys a house with it, that money is being moved around the economy again. Being taxed each time it moves. So the question really is one of who gets to spend the money that they didn’t earn, the state or the I inherritor. Who knows, the inherritor spending the money may actually be better for the economy and overall tax take than the state, because they are more likely to spend it in a capatlist, free market way.
Envy of the person who gets to spend the unearned winfall may not be the best driver of change.
Look forward to a future article on the morality of the national lottery.
Probably straining TI’s patience but can I add a couple of cautions?
First, denial of the family has a poor history in terms of consequences in the hands of politicians. Care needed.
Second, the Labour government in the 60’s had a concept of unearned income. Wealth has to be created after all so why not prevent its accrual first rather than chasing it down later? So imagine working on a building site: blisters and honest toil. Clearly earned income. Now imagine someone who had saved a bit and invested it and then sat back in front of his computer and watched it grow through no effort of his/her own. Perhaps pension, perhaps just a freedom fund. Unearned income though. Think thats fair -is gain through sitting back and tapping into the efforts of others somehow different from just being handed money by your parents?
Really guys, you need to stop reading the Guardian. It’s bad for the blood pressure. 🙂
Being lectured about paying more tax by the Guardian, who, lets not forget, have structured their own affairs both offshore and very tax efficiently, really is something beyond parody.
It seems even the saintly Abi has a sneaky fondness for a bit of inheritance behind the bike sheds – she would now like to “…keep what it takes to get out of [her] overdraft + maybe a couple of grand cushion…”
Hat tip to Mr. Staines for highlighting this little gem in her twitter feed.
https://order-order.com/2017/07/27/abi-exempts-herself-from-100-inheritance-tax/
And you can bet that when push came to shove, “overdraft” would include the mortgage and car loan, and the “couple of grand cushion” would need to be enough to send her own kids to a selective, fee paying school.
I totally get the argument from the likes of the Monevator guys who are no doubt living like monks to accumulate vast amounts of wonga so they can FIRE about how inheritance gives the already well off a further cushion againsts life’s little vicissitudes, and maybe their own wills do provide that it is all going to go to charity once they are pushing up daisies.
The issue I personally have with more taxes going to the state is that at the end of the day, even with the state, you are still dealing with people. The crucial difference is that these people have power over the rest of us. Giving more money to the state, on current experience, doesn’t seem to actually increase beneficial outcomes beyond a certain point (now is this the laffer curve, Murphy’s corollary or something else?).
The NHS is a prime example – you can fire-hose it with money and yet it always seems to be 24 hours from total collapse. And the reason is obvious – if you make something totally free, people will use it according to their expectations.
The problem is that once you hand lots of money to the state, someone has to administer that money. Which means you need to set up a department, find accomodation, staff it, light, heat, IT it, etc etc etc, the staff need to be paid, (well) pensioned, etc etc. More money to the state just seems to go on empire building and less and less seems to reach the front line.
Charities are another example of that – we’ve all seen the scandals about how 50p (or whatever figure it is) of every £1 donated seems to go in overheads and vast salaries for those at the top.
Ultimately, my own view is that those advocating higher taxes always seem to want it for other people – Abi being but the latest example. We can all get wrung out for 100% but she needs to keep a large wedge of her parents estate to “pay off her debts and keep herself comfortable”.
Easiest thing in the world spending other people’s money and as the great lady said, the problem with socialism is that eventually, you always run out of other people’s money.
On a side note, someone mentioned “immortal companies and trusts” as a possible way of dodging all this. Problem is, you’d start to fall foul of this then I think:-
https://en.wikipedia.org/wiki/Rule_against_perpetuities
My view is simply that earned income should be subject to a lower rate of tax than unearned income – i.e. that inheritance income is less deserved in some sense, and a fair target for higher tax. Currently there are various allowances and exemptions, see https://ah-ltd.co.uk/tax-rate-information/inherit.html, which approximate to “Your estate will owe tax at 40% on anything above the £325,000 inheritance tax threshold when you die”. I see no reason why increasing that to 50% would cause hardship, when the alternative is increasing tax on money one has earned in ones life for which one may well have immediate use.
My father in law was a trust lawyer. His view is that inheritance tax is largely voluntary, as people can give away your belongings before death, and that people choose not to do so means ‘people distrust their relatives more than they distrust the government’
If you tax inheritances the rich will have less to invest, so share prices would be lower and companies would be less able to raise funds by issuing new shares, that’d limit new job creation and therefore wages.
If you want to help the jams, more jobs have to be created so we have to cut taxes on the wealthy so they can invest more
I think that gifts during life and on death should be taxed as recipient’s income, in a similar way to the taxation of bequeathed pension pots.
This would be fairer, imo, and also get rid of the difficulties of judging how much to give during your lifetime by treating gifts in the same way.
I agree with Vanguardfan. Reduce IHT to zero, tax recipients as income. Removes the death tax nonsense, as clearly those paying tax are those receiving the income.
Those hoping to inherit shortly are key voters – the government is keen not to upset them. May had to backtrack completely over the “dementia tax” that threatened those eagerly waiting for the passing of an elderly relative!
@noedig. Fine if you can predict your own death more than seven years in advance and be sure you won’t need access to money for care.
Reduce income tax to a flat rate of say 25% and tax all inheritance at the same amount. Done.
Politically speaking I don’t agree with a lot of where the tax take goes. I also don’t favour handout as it doesn’t encourage the behaviours I like to see. I therefore tax plan in so far as possible to the point where I won’t make that money of the tax on it is 40%. This is essentially to avoid my money supporting things I don’t support.
If they ever attempt a 100% IHT I will do whatever it takes to avoid it (and given I’ll be dead and beyond their reach whatever it takes has literally no bounds.)
The problem with having IHT at 50-100% is that people will just blow it before they die. And those whose parents die unexpectedly are then penalised.
Couldn’t agree with you more on inheritance tax. Sadly we are in a minority. At least we could tax the recipient at their marginal income tax rate.
+1 for IHT at marginal income tax rate.
People’s capital has already been taxed, when earned, when it pays any income, and in many cases when it rises in value. Threaten confiscation on death and people will simply leave the UK before that happens. Capital in pensions (and thus taxed less) is subject to tax when withdrawn (even when inherited) but capital outside of them, which has been taxed to the hilt at every stage, needs to be treated more gently.
There certainly seems to be no shortage of ideas as what we should do with other people’s money.
I have a disabled son who will never work, and it would certainly ease my mind to think that there will be something left of my estate to help him after I am gone.
@greenasgrass (35)
Forgive me truly TI but as far as I’m aware, you aren’t a parent. Were you to be, then I believe your views on IHT would be very different, and until such time as you are, if ever your are, then your views on IHT carry no weight for me.
I suppose Guardianistas would see things thus:-
1) The explosion of immortal companies and trusts.
Introduce a new law against perpetuities if the old one is inadequate.
2) Movement abroad to lower tax countries.
(a) It wouldn’t happen, and (b) Good riddance to the facist bastards. Tax them on the way out.
3) Many couples have uneven wealth because of child-rearing obligations, you’d lose that redistribution mechanism.
Serves the lazy cows right for not entrusting their children to nurseries and returning to work post haste.
4) More poor single parent families.
The state will provide. Entrust your widows and orphans to social workers.
5) Collapse of saving for old age
Good, the end of capitalism.
6) People giving their wealth away earlier to keep outside the 7 year rule, and being disappointed that the care they expected in turn did not materialise.
Crimethink!
As someone above alluded to, the Guardian was owned for ages by the Scott Trust, a device set up explicitly to avoid tax. Recently the trust was scrapped; the Guardian is now owned by the Scott Trust Ltd, in another explicitly tax-avoiding transaction.
I suppose that would be one upside, we could apply it retrospectively appropriate the money in Scott Trust Ltd and with that the loss making Giardian would implode.
Every cloud has a silver lining
Moral arguments are always going to struggle when it comes to specific policy.
The state needs money and it can try to raise it in any way it can, and uniquely has the right to use violence to enforce its demands. It does better if it does this in ways that fosters economic activity, but also in a way that is practical.
In this sense, income tax is the most “immoral” as it taxes something that we generally think of as a good thing: economic activity. But boy does it score highly in ability to practically collect the dosh. At the other end, gambling taxes — a tax that might discourage a vice — could be said to be moral regardless of its contribution to the exchequer — but enforcement can be tricky unless all gambling is strictly controlled and licenced.
Inheritance tax fails because it’s essentially voluntary, except in cases of sudden young death, which isn’t really where a civilised society would want the weight of the tax burden to fall. Perhaps we should rebrand it the “armed forces” tax.
If we’ve collectively become idiots and decided that wealth and its accumulation is a bad thing then let’s have a wealth tax. And watch as the wealth evaporates offshore, under mattresses and out of the grasp.
Ultimately work, property and transactions, particularly for addicitons, are the easiest tax base to identify and tax, and have relatively little elasticity.
Govt should do away with iht or not do away with it: it makes no difference — it’s avoidable — legalise and tax cannabis. Should fill the hole nicely.
TI — you knew you were going to get a lot of comments. Quiet weekend? 😉
I (quite deliberately) haven’t (yet?) had children, but I’ve spoken to enough parents, including my own, and read enough literature and seen enough bad TV to be pretty sure I’d do anything for mine if I had them, like most good parents, including perhaps even laying down my own life for them.
So of course I’m sure I’d want to give them a ton of money when I die, rather than to the State.
Doesn’t make it a good policy. There’s a lot of core human desires that we legislate around. What’s good for an individual isn’t necessarily good for society (as presently constituted).
And as I keep saying, we’re paying tax one way or another as things stand. Your kids are paying 40%+ tax plus for their working lives.
After NI, half of what they earn might go to the State. For doing useful and valuable work that the world could probably use more of!
But sure, have a lottery of some super rich dead people giving a fortune to people who’ve already benefited mightily from that wealth (and are probably in their 30s/40s/50s by the time the IHT is levied/avoided) as a superior system to satisfy those atavistic urges. 🙂
Elsewhere, briefly, like the idea of taxing the recipient as if it’s income. With thresholds that exist today the rate wouldn’t be high enough for me. But I’d take it if all reliefs were gone (so every penny is potentially taxed as it leaves estate, depending on recipients’ tax band, no first £325K is free or similar) as a compromise.
Also like a single flat rate tax for everything in theory, always have. But politicians like to give bungs and to pull the levers of the appropriate target groups to get their votes in. Can’t see it happening.
Don’t think taxing only land is going to work, as someone suggested, as presumably it will just cause land values to crash (or land owners to become incredibly rapacious to compensate…? But there must be some worked theory on this somewhere).
Ultimately it’s all a theoretical chat, because there’s near-zero chance of the climate moving in my direction on this. But it’s good to kick around the ideas every 2-3 years, I feel.
Cheers for all thoughts, and the generally good spirited nature of the discussion! 🙂
Wouldn’t a 100% IHT also cause land values to collapse? Who would want to be a land owner if you know the state would confiscate it when you die? Much better to sell and spend/give away the money before that point. Would anyone want to own land? Or would they rather just rent it and put their cash to other, more liquid, use. Land would be either completely state owned or be in the control of a few, very wealthy and powerful corporations.
And yet in your About section you say this:
‘Want to make money? I do. Want more money to save, more to invest, more to give away or spend or leave to your grandkids? Do you want to be free? I do.’
Bit of a contradiction.
It’s really quite easy to avoid inheritance tax:
a) sell your house and buy a short leasehold
b) liquidate your investments and buy an annuity plus a mound of Krugerrands
There are some drawbacks of course so few people currently do this. But if the rate of inheritance tax becomes high enough, this strategy becomes a no-brainer.
So, my objection to high rates of IHT is not a moral one; it is simply that it will not work, and could well lead to lower, rather than higher, tax revenues.
I think that land tax is the standard libertarian approach? I.e. the only tax they condone. So most likely Friedman is out there somewhere on YouTube explaining how it will work?
@mathmo haha i had exactly the same thought re the quiet week couple of dystopian Brexit links thrown in just incase IHT didn’t quite hit the spot..
On a tangent. There’s a disproportionate number of libertarians here. I had noticed that its a thing with the FIRE crowd. Bit like stoicism. Not surprising i suppose. My feeling is that libertarianism would be great if everyone were up to it, i.e. tough enough to hack it. It did cross my mind that it could be good to apply libertarian values to yourself but support others with socialist values (but respect everybody’s property rights of course ). Does a libertarian party even exist in the UK?
@investor. I agree with you that there is a strong case for inheritance tax and that since inheritances are purely a matter of luck (for the recipient) they should not receive preferential tax treatment over earned income. As with one of the comments above why not tax them at the recipients marginal rate of income? (Income and capital gains have an element of luck in them too)
I feel ultimately this is a debate between socialism and free market liberalism. The Guardian and supporters of Corbyn think the state has a primary duty to redistribute wealth. They have qualified respect for personal property, the role of the family and tend to think that the total wealth of a country is a cake to be divided. They are so affronted by inequality that they would be happy to make the poor poorer provided the rich were relatively less rich.
Free market liberals care just as much about the poor (pacé Guardian readers) but recognise the fundamental importance of wealth creation, economic incentives and low taxation. Equality of opportunity matters but the primary aim of taxation is not to redistribute wealth. There is a role for the state beyond defence and law and order but only to correct market failures and to fund (but not necessarily provide itself) a decent level of education and healthcare and housing for all.
I am not sure whether you really want 100% inheritance tax or whether you are just making the point that it is illogical to privilege inheritance tax over income tax. But 100% inheritance tax sits firmly with the Guardian / Corbyn view of the world and is completely inconsistent with any rational free market liberal outlook.
@Mark — I don’t tell people what to do. I am discussing how I’d change the law. Quite understand why under current circumstances people have the motivations they do. 🙂
@Passive Investor — I usually bandy around a figure of 75-80%, the 100% figure was Abi’s in her article I reference. But yes, mainly I am contrasting IHT with other taxes we all pay, as a thought exercise.
Sorry I can’t reply to all the comments individually on this one, just too many, but hope everyone is enjoying the discussion!
I understand that but every time I hear people talking about changing inheritance tax levels, they always seem to exclude themselves with some caveat or admit that they would want to help their kids out in some way. Even dear Tony Benn configured his estate to ameliorate IHT.
You have no heirs? You may find that your view changes when it if you do.
“Socialism is great until you run out of other people’s money!”
.
Liberals keep bringing up this subject up every few years, with minimal thought/understanding of consequences of their policies. Milton Friedman debunked this stupidity decades ago…
.
https://www.youtube.com/watch?v=MRpEV2tmYz4
Whether we should pay tax at all is a different question. On inheritance tax the question is whether we would rather pay tax when we’re alive or after we’re dead.
@toony
“Milton Friedman debunked this”
He makes a very interesting (and to my view valid) point in the video: that many entrepreneurs are driven by a desire to build something for future generations of their family, and a 100% inheritance tax would therefore suppress incentives to invest in starting and growing businesses. Net result, less innovation and a poorer population.
@Peter Scarlet — Yes, this secondary effect is I think one of the weak points in my argument. Not just for entrepreneurs, but also everyday strivers at all levels of society.
On a related note, with respect to the recent news articles about young men in their 20s playing far more computer games than other generations or women, I believe this is partly because they’re opting out of the sexual/familial rat race / traditional family roles, partly because rightly or wrongly they sense those roles have been undermined and they don’t like the alternatives. (See especially Japan, where this is happening across both sexes). To some extent I could see this increasing in a very high IHT world.
On the other hand, those who did have children would still have all the everyday other motivations — great schooling, great homes, great healthcare, great holidays, ability to lavish resources and a security net on their offspring while they are alive — so after a period of normalization it might not demotivate to such a large extent.
As an aside, the only reason I’ve been able to think up for supporting insanely high CEO salaries and bonuses is that the bigger affect might be to motivate all the underlings to try harder, even though nearly all of them may never get the job. Perhaps (from a societal perspective) something similar could be at work here.
Re: Me not having children, yes, I’m sure I’d *feel* differently, as I’ve conceded. I’d hope I’d not *think* differently however, and anyway I don’t think my feelings should be core to good policy. Moreover, I’m not sure why I should pay 50%+ tax just because other people who have decided to have kids are tapping into their own selfish (not meant pejoratively, almost genetically!) motivations.
Re: The ultra-Liberal low tax perspectives, as I said near the outset, this is all very well as so far as it goes, but it is a red herring here because we *do* live in a State that collects taxes somehow and spends the money. So while we await the revolution, the issue is *how* best to collect those taxes (align incentives) and to spend them.
There is no such thing as a moral tax. Tax is theft by the state under coercion pure and simple the fact that we are brainwashed to believe otherwise is a sad situation.
@Investor
I think the message is don’t bother reading the Guardian. It famously spends its time trying to dress up its political desires (if you prefer, its “selfishness”) as intellectual theory but the disguise is always embarassingly transparent. On this specific matter, we are not “waiting for a revolution”, nor do we have a selfish motivation, just the usual motivation of normally adjusted people to benefit their children.
UK housing market – https://www.bloomberg.com/news/articles/2017-07-20/london-s-super-prime-housing-slump-spreads-to-luxury-properties
@Steve — Well you are ‘waiting for a revolution’, because the response from that line of thinking (simplified) to my question about how we should best find the 40% of GDP tax take currently funding the State is to say there shouldn’t be such a tax take and possibly not a State.
Fair enough, but currently there is, and 99.9% of Monevator readers are living and working and paying taxes in it.
So my question has a practical dimension and application, whereas that response to it requires what can only be described as revolution (righteous or not) to come about, and is thus outside the scope of this discussion IMHO. 🙂
“As an aside, the only reason I’ve been able to think up for supporting insanely high CEO salaries and bonuses is that the bigger affect might be to motivate all the underlings to try harder, even though nearly all of them may never get the job. Perhaps (from a societal perspective) something similar could be at work here.”
Perhaps rich people are driven to create dynasties that live on through their children. They want a portrait gallery their great great great descendants can look back upon. They want to be remembered. They want to be like royalty. Perhaps this drive makes them keep generating more wealth (and the resulting trickle down effect). Otherwise they would stop and retire after attaining a level of wealth that works for them alone – which is actually negative for everyone.
“Even dear Tony Benn configured his estate to ameliorate IHT.” Of course. And the Miliboys, Ed and David, conspired in a Deed of Variation of their father’s will with the intention of avoiding or mitigating IHT.
(I think socialists conspire, don’t they, and Conservatives plot?)
@ Investor
I am sure you mean well but I think you are misunderstanding the nature of the issue. You ask (apparently seriously) why IHT should not be 100%. People tell you why it should not be (eg that would cross human nature re eg children) but you then wrongly try to dismiss that as emotion, not intellect; it does not matter how that reaction is classified- it is the reality. You say we have to answer your question on your terms – accept that we have a State and that it needs to be fed tax, if necessary on your view by more IHT. But that is not real either. If any State tried to raise IHT, we would immediately cause a replacement State.
@Investor
Whatever the differences of opinion, thanks for hosting a civilised debate on an interesting issue.
Surely the fairest way would be for it to be taxed in the same way as anything else. If you are receiving, say, 100k in a lump sum it should be taxed accordingly. Why should the rules be different because it’s an inheritance?
Perhaps a more fruitful area of debate would be some of the HMRC rules that seek to hinder distribution of your assets re IHT. The HMRC website proudly proclaims: “When you die, all the potentially exempt transfers you have made.in the seven years before death become chargeable transfers. They are all added together to work out whether any inheritance tax is payable.” Really. So when exactly did HMRC conveniently conclude that humans know for sure when they are going to die? Of course they concluded the opposite – and decided to lay traps for innocent citizens. Very nasty stuff.
So, @Investor, ask not why should inheritance tax be 100% (or even increased) – which will never happen. Ask rather why the State is allowed to interfere at all with the ability of people to give whatever they own to whomsoever they choose whenever they choose?
With regard to IHT, I agree with the Investor that it creates real inequality. I was given a lucky break at birth. My luck wasn’t being born rich (my family was so poor I born poor, went to a comprehensive etc). My luck was being born with an exceptional talent in one thing; maths. So straight As, double first, PhD
@TI noone likes tit-for-tat comment arguing, so I say this with the utmost respect for your long-held position on this subject! However, it seems that it’s not just Steve wishing for a revolution (and long may he wait for the destruction of the State), and your advice to be practical might just as easily be applied to a position of advocacy for an 85% IHT rate… Do you honestly believe that could ever work for more than a very short period? It would be such an easy political target for the other side to get elected on.
I do worry about how to do this stuff better. A gift tax? If I buy you a coffee, should you declare it as income? Urgh. Universal basic income and the abolition of wealth? A wealth tax? Double Urgh.
I suspect the answer is the same as ever — muddle along with an ugly mix of taxes on the stuff that’s hard to hide, a bit of sleight of hand, and periodically expand and contract the state by a little bit…and keep the pyramid scheme afloat by borrowing more from the poor saps that follow us.
In fact on reflection, it seems almost churlish not to leave them some dosh as they’re going to have to pay for our spending.
Sorry pressed send on prior post. With regard to IHT, I agree with the Investor that it creates real inequality. I was given a lucky break at birth. My luck wasn’t being born rich (my parents are so poor I had to buy them a house …. do I get IHT credits?). My luck was being born with an exceptional talent in one thing; maths. Just genetics (I’d prefer to look like Brad Pitt … can I swap?). So straight As, double first, PhD etc. I leveraged this to allow me to make millions in financial services, setting up hedge fund etc.
I could have retired comfortably, but not rich, at 35 (2008 was very good to me). I then decided to have children. Suddenly I’m in an arms race with my colleagues to provide private education, pay for top unis, and provide a multi-million inheritance. It’s bonkers. I’m ensuring ever worse inequality but you’ll do anything for your kids. Problem is though, I won’t really pay much IHT. It’s too easily avoided. So I agree with others that the best approach is simply to tax recipiants as income.
I don’t see how people view tax as theft; it’s simply monetary sterlization (the other route being selling government bonds). The UK does seem to have a real issue with the divergence between high taxes on labour and low taxes on capital and wealth. I’d like to see CGT (applied also on primary residences, but with indexation) equalized with income tax, plus a land value tax. You can also roll NIC into income tax, so we can stop pretending the lowest rate is 20%. Perhaps income tax could even fall!
@Hospitaller (80)
It is, of course, not HMRC which makes the taxation rules but Parliament. You do HMRC a disservice which I’m sure you will now readily acknowledge.
I have more money than I can spend: not particularly rich, not especially frugal. Risk averse, don’t want a personalised number plate or a flash car I would worry about scratching. No debt, not going to starve. Will die with assets and comforted that they will help my children. No real thought as to whether in the great scheme of things they are deserving or not. This is money, capitalism, this is how it works. This is perhaps why I still work when if I stopped I wouldn’t starve.
Why would anyone want to mess with that? Am I doing some harm I was aware of? Is my moral compass adrift? Am I a bad person such that a government needs to intervene and control what I do?
Looking the comments over as a tax it engenders visceral hatred amoung an extremely high proportion of the contributors, it’s probably safe to assume that this represents a good proxy for the wishes of the population as a whole.
In short a tax that would ensure whoever enacted it would be punished by never holding elected office again.
Let us accept, for argument’s sake, that it is wrong to accept money which you have not earned. How does this give other people the right to deprive you of this money? Why does it become theirs to do with what they please?
Or to put it another way: just because you disapprove of my inheriting some money does not give you the right to take it away.
@rick24 @MrOptimistic — I’m getting a bit frustrated about these latest comments, which don’t reflect what was being discussed and I don’t think help the discussion at all. As has been repeatedly stated above, it is a fiscal matter for the State of where do we raise taxes (as much as is practical, which as usual it’s been persuasively argued may not be the case with IHT) not a punishment for the deceased or the heirs.
Just a heads up to save anyone typing — further short content-less comments in this vein will be deleted — cheers. 🙂
Even at 75%, it would be a one trick pony. All asset prices would collapse as people liquidate assets to avoid the tax and the government liquidates estates to produce cash. They might get a first generational injection of funds, but that would be all.
Land value tax is a much better source of revenue because it taxes something that is truly scarce, land, which has limited uses. Land tax would also apply whether the land in question was owned by individual, company or trust, and whether the owner was present in the UK or not.
It would have to apply universally to all land, be it currently used for housing, industry, commerce, agricultural, green belt etc. Inter generational acquisition of land would still be possible, but each generation would need to generate wealth to pay their land tax.
Tying up significant personal assets in home ownership may also be a thing of the past, as homeowners would have to pay too. Given that we tie ourselves up in knots about housing and home ownership, a LVT would both decrease demand for home ownership and increase the incentive for land owners to allow development in order to generate revenue to pay their LVT.
IHT creates too many incentives for destruction of capital and changed behaviour in the direction of less economic activity. LVT provides incentives to use land for economic activity.
I’m all for the Luncheon Voucher Tax.
As for IHT, reduce the rate from 40% to 10% and make it practically impossible to avoid.
It’s interesting to see two fundamental perspectives being assumed in these comments: some talking about the right to give away money and others talking about receiving it. It’s almost an unconscious framing. The dead don’t give anything – while alive they may direct who is to receive the wealth, but it is evidently a living person being granted a windfall and should be taxed at the marginal rate of the recipient (at least).
Also interesting to see comments about helping “children” which carries connotations of possibly struggling youth, when reality is they will be in their 50s or 60s and hitting retirement themselves when they inherit, not to mention likely (statistically, not guaranteed) to be doing pretty well themselves with parents who are subject to IHT or with a significant marginal tax rate.
And obviously there is a *world* of difference between 80% and 100%. When Bezos leaves his kids 10 billion a piece so they can build that portrait room filled with renderings of elder Bezos’ bald bonce, they are not going to be terribly constrained by having 2 billion to spend instead of 10.
Re avoidance, is this referring purely to shenanigans done before death? Because I assume an estate has some kind of licensed, regulated, legally constrained executor who will be responsible. I can’t even get out of paying tax on a private used car purchase here without committing an offense.
@Investor – I’m guessing a typo in the main text?
the middle-class JAMs – who have to more tax on their incomes
should be
the middle-class JAMs – who have to pay more tax on their incomes
Lively debate! I had to google what a JAM was, an acronym I’d never heard before!
I think taxing higher is just making people plan to avoid it more in all honesty. The same can be said for the removal of Personal Allowance at > 100K which creates a 62% tax. People avoid this by throwing everything they can into their pensions (since you get to keep your personal allowance band and the 20% higher rate tax is paid back to you in the tax return). But that then means the money, from HMRC’s perspective, is tied up for a good long time. Anybody running a business knows about cash flow, and I’m sure if the Personal Allowance removal for every £2 over £100K was redacted (thus a 42% tax) then GB Ltd would have more in the exchequer plus more people aspiring.
As the Guardian said, 100% IHT isn’t ever going to be on radar as it’s just as much of a manifesto vote killer as the dementia tax.
Slightly off topic, but does anyone find it really difficult to read main stream newspapers now? So for example the Times and Telegraph I find too right wing, but the Guardian’s standards have slipped endlessly over the past 2 years and it’s really become too left wing. I find myself reading the FT more for “normal” news, meaning I find they’re the only centrist objective news there is lately.
@Fremantle,
In your idea of Land Tax, would there be different rates for different areas, etc? E.g residential, commercial, farming (and all the different types), greenbelt.
If not I can’t see it working. E.g Greenbelt is constrained to farming, etc. I have experience of farmers who actively use some of their land to provide food supply for birds as they get subsidies and grants for it. They don’t do this out of being good citizens, they do it to survive!
In residential it will probably mean the capital appreciation conversion to taxation which brings with it other issues down the chain, such as people who bought their 6 bedroom houses and rattling around in a lonely existence will be forced to sell. Should they be forced to sell? I’m not sure someone that’s lived there for 30 to 50 years should be forced to, but that’s what a land tax does, and then it starts to look like a dementia tax.
Whilst talking of dementia tax, we won’t know what for sure lost May her 20 point lead, but circumstantial evidence points to the dementia tax without a limit, which probably brings us around to Inheritance Tax. I’d say in older people’s eyes the issue with dementia tax was you earn a crust over many years , pay your taxes , then you have to give it away again, so there is no inheritance to pass on. A clear vote loser, inferring increasing IHT from its 40% would castigate the party peddling it from power.
It’s tough to find meaningful alternatives to what we have, although it’s clear our current system is far too complex.
I believe the justification for the tax was suggested by yourself when you quoted and then agreed with the following comment:
“Morally speaking, people who stand to inherit large sums haven’t done anything to earn that money.
An accident of birth placed them in a comparatively wealthy family and they’ve benefited from that their whole life.
This is the argument I make, too.
I was attempting to undermine the justification which you yourself give.
…You stated the motivation or political justification for the tax and I questioned it in a single sentence. Sorry if that was too elliptical. I don’t believe it was “content-free”.
Taking a slightly more philosophical view, it can be argued that whether inheritance tax is 100% or not is rather academic because most inherited wealth has gone by the third generation. Rags to rags in three generations is the cliche, and it’s a cliche for a reason: it’s true in the large majority of cases. So whether you tax or not, the money will circulate it’s way back into the government’s bank account within a few decades.
Plenty of countries that have zero ar close to zero inheritance tax. Plenty of much higher tax bands when it does exist. I build a company with my family. A lifetime achievement. This will die under 100% tax rules. A waste of generational effort and only favours the larger company in an economic system. 100% confiscation of wealth on death is part of the communist manifesto. Even China has no IHT.
There is also a theological point which is at that confiscation of someone’s wealth after death is a crime against their immortal soul. If they have chosen in a will to leave some or all of their money to a State, because they think that State is wonderful, well fine. But otherwise for a State to take their money would seem the most heinous of sins.
@greenasgrass
That’s so true about the 3rd generation effect. I see it now – I have two aquaintances where their father made a lot of money in oil, they are very thrifty and their offspring have rebelled and don’t understand the idea of wealth retention. For example one of their sons recently complained he wasn’t allowed to go First Class to the USA (11hour flight) instead of business class. When I go (not that I could afford business let alone first) I’m sure my luggage has more room than me!
The percentage of people that make it past the 3rd generation as wealthy truly is small.
There are tax planners that give advice on keeping the wealth, and having trusts, etc, but I always think the only winners in those schemes are the tax planners themselves as trusts seem to be fair game for fleecing by the state (meaning retrospectively too).
I hadn’t thought about the dispersement of wealth across generations. Funny! Would be good to see real research on that.. How much goes to the local McLaren dealership, how much to dodgy overseas investments, bad business startups, etc. Not sure that much of it gets back to the state.
I agree with Christof, vanguardfan and zxspectrum48k. Surely the fairest and most practical approach is to treat all income the same whether it is earned, interest, dividends, capital gains or an inheritance.
I also sympathise with AltanticSpan’s point. Some families might face particular situations where leaving money for offspring is a pressing priority (children who will need care or be constrained in their ability to earn a living).
And that leads on to my final point which is that IHT is always going to be a very emotional subject because it is interfering with parents in their role in doing everything possible for the well-being of their children. It feels like an assault on the family. Especially at a time when society has become more dog eat dog. The UK seems to be becoming less homogeneous and cohesive every year. Support for universal parts of the welfare state such as the NHS and state pension is strong but support for redistributive welfare is weakening as rather than being a universal safety net it becomes more of a way of life for the underclass. Tax payers perceive the money that would have gone to their children as going to a bunch of people they have nothing in common with instead. A sustainable tax has to gain widespread acceptance from those to be taxed otherwise it lacks political legitimacy and cannot be sustained.
@cat793
I like your last paragraph about sustainable tax and widespread acceptance. A case in point – the poll tax from the Thatcher era. It brought her down really.
Sterling work from Monevator as always making the economically sound case. Shame so many people continue to (intentionally?) confuse the “How should we tax?” question with the “How much should we tax?” one.
Perhaps we advocates for higher IHT need to start laying this out in much more simple terms like “Reduce your children’s income tax rate by x% every year of their lives in exchange for Y% higher inheritance tax”?
I’m one of the lucky ones who may one day (hopefully a long way off) inherit a significant amount. I also have children who I hope will survive me for many decades. Morally I think my and their inheritance should be 100% of everything over say £10k though those named in wills should have first dibs on buying sentimental items at a fair market price. Practically I fear this may be too difficult so I’d settle for the simple elegant solution of both inheritance and gifts being treated as income on your tax return and hence taxed at the marginal rate.
As a first easy step there are huge loopholes in inheritance tax that should be closed. I don’t understand why adults in good health should ever be allowed to be beneficiaries of trusts for example.
Aside from the philosophical issues around this, the practical issue is that the most wealthy parents will find a way to avoid paying IHT and pass on their wealth, making it an even more unequal tax.
On a philosophical point of view, I’m strongly against a punitive level of inheritance taxation.
@The Rhino
Uk Libertarian Party: https://libertarianpartyuk.com
In relation to some who believe that either a land value tax or even 100% inheritance tax (god forbid) would destroy land values. Well, it could be argued land values are drastically and artificially pumped up by the ludicrous amounts of fake money now pumped into all economic systems via fractional reserve banking (another Libertarian hate I am afraid to admit) and need to be allowed to find a fair value under a solid money system backed by gold (or anything not controlled by governments and/or banks).
Solid money and a land value tax are the fairest system I can think of. Obviously it requires reduced public service (which is controversial I accept) but private business is pretty good at providing quality goods and services cheaper than any government can do.
sorry. Added this to wrong thread in error
What about high inheritance tax that funds a global basic income? Fast way to fix inequality and everyone ultimately benefits.
Not sure if this has been covered, but if you are proposing 100% inheritance tax rate, are you advocating the winding up of all trusts used for protecting the family wealth?
@ John Were
Doubt that everyone benefits; presumably the inheritors in fact lose out. Also unsure that equality is something that needs to be or can be “fixed”; inequality is probably as inherent as eating, drinking and breathing and may even be as important to the long-term survival of the species.
” inequality is probably as inherent as eating, drinking and breathing and may even be as important to the long-term survival of the species”.
Amen. Don’t try and ‘fix it’ by theft!
1. First of all assumption that people inherit money they do not deserve is false.
I can easily imagine child helping his parent run some business or build a house etc.
Granted there are cases where people may inherit some wealth they do not deserve. But I would rather argue that prevailing case is children add to wealth of their parents.
2. How do you know my children will spoil inherited wealth.
It is very cheap assumption that inherited wealth will be spoiled.
3. What is wrong with children spoiling inherited money?
How is it better than me spoiling it first?
4. 100% tax mean money will go to ‘government’.
Are you sure government will make better use of my wealth. Are you sure government will make better use of small business I run. Are you sure government will actually make any use of my wealth (as not everything is money) except of selling it?
I feel it is dangerous to make the case that having a high IHT is valid because beneficiaries have done nothing to earn the wind-fall. The same argument could be used against benefits claimants… making sure they have put into the system and earn their ‘handout’? Perhaps the motives of Santa Claus should be questioned (or taxed)… do the kids really deserve those free toys?
I understand the feeling of unfairness that the passing of wealth through inheritance can bring but currently feels to me like tackling the wrong end of the problem. If someone wants to save all their life and pass it on to someone else they should be free to do so. Manage the way wealth is accumulated rather than distributed: there are plenty of tax loopholes to close before increasing IHT would seem fair to me. Such as… have capital gains tax apply on death just as it would have in life. If you follow Warren Buffet’s advice and never sell shares then neither you or your estate will ever pay capital gains tax (at least in the UK).
I also think that adding upper limits on tax shelters, such as ISAs, would seem fair. I am in a position to take some advantage of the current rules, but can’t see the national good in being able to hide another £20k each year from the tax man… that’s a life’s savings for a lot of people.
I find improving education, such as making it free for those who stay the course, and providing opportunity for all to climb to the top of the mountain is preferable to penalising those that got there before you.
Hi Steve, thanks for your thoughtful comments.
I feel though your last paragraph perhaps encapsulates the differences between those of us who are for IHT (and why) and those who are opposed:
I agree with you about education. Together with free healthcare, I think it’s the most effective form of redistribution.
But I can’t agree with your last sentence, because as I’ve said repeatedly IHT (in my personal view, which is only that) doesn’t penalize “those who got there before you”, it penalizes (for want of a better word) those who have done nothing at all to earn their money except be born to those who got there before you.
Further, if *everyone* is climbing the mountain equally, then those being given hand-ups by their parents through massive cash windfalls are going to be permanently ahead and over the next ridge. That’s not a meritocracy, it’s feudalism.
Perhaps this didn’t matter quite so much when property wasn’t so ruinously expensive and divisive, but pretty much all the 20-somethings I know in London — even those now who work in anything but elite end of financial services — have given up on owning a home unless their parents can transfer six-figures to them. To be sure that arises from a variety of issues, but the inequality perpetuated by permitting huge tax-free transfers is pretty evident. And this isn’t even triggered by death.
I think those who have argued for all income, regardless of source, should be taxed at the recipients’ highest rate, may be on to something.
Anyway, thanks again to you and all for a pretty good discussion on this! 🙂
I think a lot of people are forgetting that inheritance tax falls on wealth that has already been taxed. It’ s theft pure and simple whether it applies to the middle class or the super wealthy.
Except that wealth arising from your main residence has never been taxed at all – except for a small amount of council tax.
Another one of those loopholes: that the nation does not benefit from increased personal property prices. Stamp duty is a sort of perverse tax aimed at the same thing but arguably from the wrong side: the buyer paying for the (increase in) value of the sellers’ property. Again, using IHT feels like a clumsy way to fix this.