What caught my eye this week.
Last month we discussed how many more people are being taxed at the highest rates of income tax than ever before.
And despite a spirited rearguard action from a few old-timers who say you wouldn’t believe the tax they paid back in their day (days when you could still buy the average home for four times even a slightly higher-taxed salary, incidentally…) the consensus was that enough will soon be enough, if it’s not already.
Unsurprising perhaps, given we also learned last week that a majority of Monevator readers are higher or additional-rate taxpayers.
Turkeys are not renowned for their love of the roasting tray.
Same old question
So here’s a more contentious challenge – especially for the higher-earners among you who feel overtaxed right now.
The Telegraph recently launched a tub-thumping campaign to abolish inheritance tax (IHT). Veteran Monevator readers know IHT is my favourite tax. But the UK population hates it.
For whatever reason, the typical person would rather we tax hard work over a lifetime than someone who just happens to pop out of a particularly auspicious uterus through no effort of their own – a scenario where if anyone deserves a big wealth windfall it is surely the gasping and pained owner of said uterus, not the newcomer riding the slip-and-slide into human civilization.
I would continue, but happily ex-Telegraph leader writer James Kirkup has done so less sloppily in The Spectator this morning.
I like IHT and so do a lot of people like me: professional policy wonks and economists, who proliferate at Westminster and often get a lot of prominence in political debate – especially on Twitter.
My technocratic tribe largely regards inherited wealth as harmful to social mobility and economic efficiency. We’d rather see large accumulations of wealth redistributed by the state than cascade down to children who may already have enjoyed significant economic and social advantages […]
We get particularly enraged by arguments like ‘it’s double taxation’, since ‘double taxation’ is commonplace and unremarked on elsewhere.
Every pound of taxed income that you spend on VAT-rated items, for example, is being taxed twice.
Hear hear. Alas, Kirkup continues:
We’re all scared of dying and one of the few sources of comfort is the idea that when we do, we can leave something behind for the people we love; the power of that feeling is so strong that it doesn’t matter if your estate isn’t in any danger of incurring IHT. You’re still very likely to hate the idea of that tax and support its reduction.
Kirkup’s whole article is worth a read. He makes further pertinent points about the state of British politics and especially the still-benighted Tory party. More than 50 Conservative MPs apparently support the idea of this unfunded £7bn tax cut that benefits a mere 4% of the population.
Political titan Liz Truss is one of them, which would be enough to get the policy squirreled away into an old biscuit tin in the attic in a saner reality.
But what about you guys?
Heir-raising taxation
We mostly agree income taxes are too high.
But do you also call for the equivalent of a 1p hike in the basic rate so that already-advantaged kids can get everything they’re due but nothing they’ve earned for themselves?
Or do you accept that – unpleasant as it is – somebody has to pay the state’s way? And that it’s better to incentivise hard work and, dare I say it, entrepreneurship, than the feudal notion that every old Telegraph reader’s three-bed in the South of England should be their castle to be passed on unmolested to their by-then already mostly-well-to-do 40-to-50 something year-old offspring?
I’ll don my flame suit (I’m off to a BBQ next, it’ll do double-duty) though I’m not looking for a fight. Rather one of our considered discussion about the facts.
Which are: we’re poorer as a nation than we were, not least due to a previous populist decision we made a few year ago. That economically self-destructive move is already costing us at least £40bn in lost tax receipts. Yet someone has to pay to keep the show on the road – and it can’t all be done by the GDP-boost from record immigration.
So it’s a serious question. If you won’t tax the dead than who?
Have a great weekend.
From Monevator
Commodities investing: why we’re missing a trick – Monevator
Ego as a catalyst: why I see value being outed at this investment company [Mogul members] – Monevator
From the archive-ator: How to estimate care home costs – Monevator
News
Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.
UK mortgage lending hits record low in sign of market stress – Guardian
Larry Summers blasts Brexit, calls it a historic economic error… – Proactive Investors
…meanwhile Eurozone inflation falls more than expected to 6.1% – CNBC
The S&P 500’s gains this year are almost entirely from five companies – Axios
Is your Barclays or Lloyds Group branch among hundreds closing in 2023? – Which
ESG-hostile activists in the US could break how Vanguard runs index funds – RIABiz
They came. They saw. They incinerated half their funds’ potential returns – Morningstar
Products and services
Building societies offering members regular saver rates up to 9% – Guardian
Annuity sales soar by 22% on much more attractive deals – This Is Money
Can you save money with a ‘green’ mortgage? – Which
Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor
The tiny odds of winning nothing in a year with £25,000 in Premium Bonds – This Is Money
The best savings accounts in June – Be Clever With Your Cash
Open an account with low-cost platform InvestEngine via our link and get £25 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine
Return train tickets to be scrapped on LNER routes. A money-saver? – Which
Pastel-coloured homes for sale, in pictures – Guardian
Comment and opinion
Against index funds, part II – Fortunes & Frictions
Have index funds become growth funds? – Morningstar
Don’t bet on market timing – Humble Dollar
Inflation is widening the gap between private and public sector pensions – This Is Money
Other people’s money – Humble Dollar
A discretionary withdrawal strategy for early retirement – Mad Fientist
Introducing the weird portfolio [Few weeks old] – Portfolio Charts
Do you need a ‘Mary Jean’ list to help your other half or kids? – Humble Dollar
Regret-optimised portfolios and optimal retirement income [Podcast] – Rational Reminder
Naughty corner: Active antics
Weddings and divorce: the scourge of investment returns [Search result] – FT
Working hours in hedge funds vs. private equity – eFinancial Careers
How to build defensive equity portfolios – Advisor Perspectives
Why people continue to invest in active funds – Financial Samurai
How to avoid dividend stocks with excessive debts – UK Dividend Stocks
Why down-and-sideways markets are bullish – Of Dollars and Data
Sector expertise doesn’t typically generate alpha for fund managers – Finominal
Kindle book bargains
A Man for All Markets by Edward O. Thorp – £0.99 on Kindle
Liar’s Poker by Michael Lewis – £0.99 on Kindle
Love, Pain, and Money: The Making of a Billionaire by John Caudwell – £0.99 on Kindle
Crickonomics: The Anatomy of Modern Cricket by Stefan Szymanski and Tim Wigmore – £3.79 on Kindle
Environmental factors
What ‘rewiring’ an economy means for investors – Schroders
Why cultivated meat is still so hard to find in restaurants – BBC
Black sea urchins have disappeared, threatening a coral reef – CNN
Huh, our fake beach is good for baby sharks – Hakai
Pesticide firms withheld brain toxicity studies from EU regulators – Guardian
In defense of flies – Vox
Robot overlord roundup
AI ‘godfather’ Yoshua Bengio feels ‘lost’ over life’s work – BBC
Is an AI stock market bubble inevitable? – A Wealth of Common Sense
AI-controlled military drone ‘kills’ its operator in simulated test – Guardian
Tech giants have been investing in AI for years – Crunchbase
Off our beat
Tarzan FIRE [Sort of on our beat!] – New York Post [h/t Abnormal Returns]
Can humans ever understand how animals think? – Guardian
Paying attention – Morgan Housel
Multi-cancer blood test shows real promise in NHS study – BBC
One of the world’s most controversial philosophers explains himself – Vox
The power of staying put [Podcast] – Morgan Housel, again, via Spotify
It’s good that we now do vital government business on burner phones, like drug dealers – Marina Hyde
Is Apple’s weird headset the future? – Vox and FT [Search result]
Why our allergies are getting worse – NPR
And finally…
“The cowards never started and the weak died along the way. That leaves us, ladies and gentlemen. Us.”
– Phil Knight, Shoe Dog
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IHT – my unpopular view is that I’d rather pay tax when I’m dead than when I’m alive.
Back in the real world, the best proposal I’ve seen is to tax the recipients of inheritance as income.
In the very same article from The Spectator (which is so much the tory house magazine one Boris Johnson used to be its editor) the journalist says that IHT should be abolished and replaced with a flat tax on gifts at the same rate as income tax.
Which is so obviously the just policy to have.
He also writes that the tory party has a soft underbelly in favor of inherited wealth and privilege rather than the meritocracy they like to think themselves.
Everyone likes to talk about meritocracy but only one where there are no snakes downwards, only ladders upwards.
An emotive subject, your chucking in another grenade after your middle class fun! If inheritance tax is a fair tax and is necessary then everyone pays it, no weaseling out for the King, landowners like Duke of Westminster, business owners, offshore holdings etc etc, fairness is the issue I have. Most don’t pay and those who fall into its grasp through luck, hard work, diligence or judgement may have been heavily taxed on the way in. Incidentally re double taxation its still spent at some point so will that mean some will be triple taxed?
Agree with both re tax on recipients, in principle, although it would be far more complex.
I don’t see how reform of IHT can be separated from social care funding – that is a far greater injustice – if you lose the older age frailty lottery all you’re effectively paying virtually 100% inheritance tax.
Far fairer to fund older age care from a death tax on everyone imo.
I think there is a case for making inheritance tax 100% with the exempt amount being the average house price. This would provide a powerful incentive for older folk to start spending/giving/donating their money rather than it sitting around, quite often in cash or cash like assets. I’m in my 40s but I think in my 70s I will probably annuitise what I need (more than I need) and get rid of the rest. In my personal experience, a lot of older people hoard their wealth, hating the idea of inheritance tax (if they are wealthy enough) but unable to bring themselves to spend it or give it away.
It literally doesn’t say that at all in the same article from the Spectator. Perhaps you mean the same issue?
I agree that taxing inheritance as a gift is a big step forward; putting the tax focus on the recipient.
@Vanguardfan
I don’t get why social care funding is such a great injustice.
If you can pay for it you pay for it, if you can’t you don’t have to.
Otherwise you are asking comparatively poor (i.e. unwealthy) people to pay for someone else to inherit a lot of money.
Inheritance is a lottery full stop.
Creating a social care safety net does nothing to change that.
Theoretically, I don’t mind IHT. Realistically, though, you cannot expect me to pay IHT if the Royal family or Duke of Westminster don’t. Or for that matter, many farmers. Plus the whole system of trusts that old money has in the UK to avoid it. Without that paying IHT puts my children at a relative disadvantage. Which as a parent I cannot allow. So I will avoid it as well.
Theoretically in favour but realistically I would prefer it abolished. How dissonant is that? A genuine level playing field is necessary but will never happen.
@Investor
I read the article on inheritance tax in The Spectator last night, so maybe its a different one. This one: https://www.spectator.co.uk/article/abolishing-inheritance-tax-would-be-a-mistake-for-the-tories/
Seems from the comments it went down like a cup of cold sick from the comments, quelle surprise.
@Neverland — Yes that’s a different article. I think Kirkup links to it at the top of his.
Let’s not get distracted by the politics of The Spectator or its readers (or anyone else beyond the facts of inheritance tax and its pros and cons, ideally).
p.s. I see you’ve already responded to coming off the auto-delete list by trying to antagonize other readers with throwaway jibes. Deleted it. Please restrain yourself old man.
Part of the issue is that we continue as a nation to fancy the idea of a Scandinavian public realm funded by an American style low-tax regime. If we resolved this dichotomy then the solution (if one was needed) on inheritance tax would become clearer (as it would on a whole load of other taxes, too).
The biggest single challenge we have in this country is that we have an entire political class, across all three of the mainstream parties, that refuses to have difficult grown-up complex conversations with the public. Cakism runs riot.
@JonathanM
Macron, in his singularly arrogant way, is trying to have a difficult grown-up conversation with the french about retirement age not 25 miles from the kent coast at the moment. I don’t believe it is going well.
This isn’t just a UK problem.
As several commentators have already noted, what really gets up people’s noses is that it’s almost a voluntary tax for the super rich, who take advantage of numerous trusts and reliefs, while careful, modest middle classes who have been both astute and lucky get clobbered.
An interesting article from Dan Neidle here https://www.taxpolicy.org.uk/2022/05/17/iht-mystery/
suggests removing the avoidance mechanisms would allow the rate to be reduced to a more palatable 20%.
And I’m sure more would be willing to part with wealth during their lifetimes, were they not worried about the huge costs of long term care.
I’m totally with you, and bemused by the levels of anger it generates. I’ve had a few (fairly polite) discussions about it this week on social media, and the arguments to scrap it seem misguided to me.
“How will the kids afford a house if we can’t give them lots?” – If buying a house is dependent on exceeding an IHT tax free allowance that can creep up to £1m for a couple, then the problem is housing, not this. And yes, that is a problem! Besides, what about all of those kids who don’t have that coming to them?
“I’ve earned all of that, my life savings” . Well, firstly, you probably haven’t – it’s probably mostly in a house that’s appreciated tax free for decades. But even if you did, then so what? You’re dead now and your offspring hasn’t earned any of it.
I’d be all in favour of going in the other direction personally. Yes it’s somewhat a turkey voting for christmas, but this country desperately needs to swing the pendulum back to taxing wealth.
The idea that we’re sitting in the hole we’re in now as a country and the discussion is about how to further alleviate the ‘burden’ that only the top 4% of estates pay is frankly ridiculous.
@martin t yes another reason why I think the whole death tax/housing wealth hoard issue has to be considered with older age care funding.
We need a system that collectively funds care needs (given the essential lottery of whether you have your assets wiped out or not) and that incentivises reducing assets during your lifetime (of course the former would help with the latter).
@neverland it’s unfair because it’s arbitrary whether you need expensive support in old age. And basically if you have a house but nothing else, it will all go, whereas if you have plenty of assets you can gift some of them during life. I think the two issues are related for the reason Martin points out. People hold on to too much so that they can fund care costs that might never arise.
Sorry for the long ramble.
This issue is a difficult one because it’s ultimately about values and preferences, rather than about the underlying primary facts; which in contrast to values, most people in the IHT debate do more or less agree upon, even if they disagree on the relative importance and relevance of those facts.
I don’t subscribe to MMT lock stock and barrel, but it seems to me to be somewhat less wrong than the alternatives in its description of how government is funded and how money is created.
There is no shortage of money to fund public expenditure and that expenditure is not paid for by tax. All governments fund expenses by crediting the accounts of their suppliers and employees. Tax doesn’t come into expenditure per se, and in principle a government can fund as much expenditure as it likes. It has the legal means to do so, as it’s currency is the only legally valid means to settle debts, including taxes. However, the productive capacity of the economy is limited, and if the supply and/or velocity of circulating money increases too much, relative to the capacity of the economy, then prices rise. Typically, the higher the increase in the supply of money then the greater the increase in its velocity of circulation, and the higher the rise in the price level. So governments have to tax to soak up the excess liquidity (the circulating cash over and above the level compatible with broadly stable prices). Taxation is an inflation control mechanism, operating alongside other levers, like interest rates (effectively the cost of money). The money collected by tax isn’t so much raised and spent as gathered in and cancelled.
Inflation itself is a form of tax in this sense, but it falls disproportionately upon those least able to pay it, and it is therefore highly regressive. It is also levied without the oversight of Parliamentary scrutiny applicable to ‘ordinary’ taxes.
So, the relevant questions in relation to both IHT specifically and taxes more generally then become:
1. Who is it fairest / most appropriate to tax the most?
2. How (and by how much) should they be taxed?
3. In what circumstances should they be taxed?
Thereafter any consensus (if indeed there was any before) breaks down.
From a utilitarian perspective (and I’m not advocating for or against such a perspective here, just illustrating); you could argue, in some sense, that IHT is fairer, as the person who earned or amassed the wealth is dead, so they’re not around to experience the disbenefit of being deprived of it through taxation, and their heirs are being deprived only of an expectation of receipt to that proportion of the estate which will be taxed, and not deprived of any property that they actually already possess and enjoy.
With the productive capacity of the UK looking in a pretty bad way (not least, but not only, because of Brexit), there does not seem to be an easy non-inflationary way to pay for the social infrastructure which the public expects without raising one more taxes significantly, or creating some new ones.
IHT is small beer now in revenue terms, so it’s scope would have to be increased really quite significantly to make a big difference.
On the one hand every little helps, but on the other hand IHT is simply not going to be that much use in raising tens of billions p.a. more revenues (as will be needed, with a shrinking and aging population, in the decades ahead) unless the IHT threshold is ratcheted right down, perhaps to just £100k ultimately, and possibly with one or more a higher rate(s) introduced. I for one just can’t see the electorate voting for that.
If there was to be an meaningful increase in the scope and/or rate of IHT then there would also have to be a significant anti-avoidance effort, including against trust structures. Any exemptions would come under intense scrutiny and pressure.
I found the “Against index funds, part II” post by “Fortunes & Frictions” post interesting, but possibly a thinly veiled advert for Dimensional Funds.
Dimensional are huge and still fly mostly under the radar, but one thing that wasn’t mentioned is that DIY plebs like us can’t buy them without going through a advisor who will happily take a management fee.
The issues around IHT as I see them:
1. The 40pct rate is too high, which really encourages avoidance.
2. The threshold is low. The 4 percent capture rate is backward looking, and with inflation and frozen allowances going to get much larger.
3. The weird oddity of no CGT on death
4. IHT is easily reduced if you plan and have significant means. As so often there is a squeezed middle.
5. Taxing the recipient is great in theory. Until the recipient moves to Dubai to receive their inheritance.
6. People want to give what they can to their family. It’s human nature. It’s part of what drives people to work hard, take risks and accumulate wealth.
So I would propose:
1. CGT on death. It’s only fair.
2. A lower IHT rate. Think 10 percent, so people will not try so hard to avoid
3. The removal of most / all exemptions. Think of the unintended oddities like AIM stocks, private companies, trusts, 7 year rules.
4. Tax on the estate, and all lifetime gifts.
In summary a lower rate more evenly spread. I think the money raised would be at least compatible, with less hissing, and more equitable. With hopefully far fewer tax advisors.
Jonathan M – “Part of the issue is that we continue as a nation to fancy the idea of a Scandinavian public realm funded by an American style low-tax regime”
Agree, but look at a tax calculator for Denmark and compare to UK the net pay after taxes/social security is similar to the UK. Employer payroll (ie Employers NI) is similar too).
(Yes, things like VAT are slightly higher in Denmark but quality of public services much greater!)
Question is with the tax burden so high why is UK public services so poor?
Answer – the tax burden is falling on lower numbers of people.
@Vanguardfan
You say it’s a lottery whether people whether people need expensive care in their old age. It’s even more of a lottery if your parents have anything to leave you in the first place
The current system ensures everyone gets care, albeit mainly by severely underpaying carers. That’s the real burning injustice
@Daz
I agree with all that but you missed a big one that is coming into tax planning since I think 2015
6 SIPPs are outside the estate for IHT
So now you get the SIPPs never being taxed and used for intergenerational tax avoidance
That’s a big easy win for the next government
Total HMRC tax receipts in 2022/23 are £787bn. IHT is £7bn, so less than 1%. It’s in the same territory as Air Passenger Duty (£3.2bn)!
Now it could raise more. The structural tax relief from the IHT nil rate band was estimated to cost the HMRC 22bn in 2020/21, or 4x the amount collected in 20/21 (£5.2bn).
So about 80% of the potential tax take from IHT is avoided by the Nil rate band. If you want IHT to raise anything useful, the Nil rate band has to go. You need to tax everyone. Not just the top few percent. The idea that taxing the rich/super-rich will work but the “middle class” still needs some exceptions for homes etc is just not going to work. You have to take the middle classes’ homes. That’s where the money is.
CGT on primary residences would collect far more. CGT on death would collect far more. Income tax or CGT on the recipiant far more. Choices choices.
The fundamental problem is the way Darwins rules affects individuals (of all species)
The winners haul us all along in their wake – that’s the system and it works and it’s unchangeable and unfair and coded into the DNA
You then have to take care of the less fortunate/less well endowed by taxes in life or after death
Unfortunately the winners will always beat the system as they must or we are finished as a species
This evolutionary dynamic is there for a reason -because it works
Therefore there will always be a constant job of work to be done in “levelling the playing field” which will never be achieved by definition
An interesting argument is between “Conservatives” who believe in individual responsibility and “Liberals” who desire the “State” to do the heavy lifting -to solve this problem
Fortunately/Unfortunately the population seems to be split evenly between Conservatives and Liberals-arguably another successful Darwinian evolutionary adaptation by our particular species?
The scenario is therefore set to run and run
Is British compromise another successful evolutionary (cultural) adaptation for this age old problem?
xxd09
Agree with what seems to be the emerging consensus – I’m fine with IHT in concept, as long as it’s fair. Minimal loopholes, either make it something practically everybody pays (at a much lower rate) or really jack up the threshold so that it’s truly progressive and only the truly rich pay (US, for example, is ~$13M, $26M for a married couple). Hard to argue that £10M-ish isn’t plenty to set up your heirs!
Although in practice that winds up effectively abolishing it, and I am inclined to agree that that might be the most realistic option to get a fair system, given politics…
@Daz #18 “issues” 6.
Yes, and writ large it is that alone for me!
My answer to blank-slate egalitarians is simple – if you have what it takes to succeed you do succeed, if you don’t have what it takes you fail; tough but true it’s down to you.
I thought this might elicit a load of comments 🙂
It’s just smart politics isn’t it? Conservatives looking to shore up its core base ahead of an election next year using the right wing component. IHT isn’t a policy that figures large in the minds of the majority (this readership isn’t the majority of course) given they aren’t impacted by it so it’s a no lose strategy.
Those in the cabinet can nod sagely and say as and when there is the means to do something about it, we’ll take a look. Meanwhile nothing to see here.
The performance of the small no. stocks underpinning S&P500 gains really shows the futility of active mgt for the majority – miss the winners and you miss the gains.
Picking up the Larry Summers article, I thought Chris Patterson on Question Time who referenced him earlier this week was pretty good…in a nut shell we’re in a mess and neither the Labour or Conservative representatives had any obvious answers.
So Ultra Long Index Linked Gilts…..crashed loads since last year and they are CGT tax free. Don’t look in bargain territory but worth watching?!
@xxd09 #23
Well said Sir! Wherever CD is now, he will be nodding his head in agreement.
On the Axios article linked above: is it really that unusual for the near term gains to come from only a handful of winners? All the long term gains (over and above the return from short duration Treasury Bills) come from just a tiny handful of businesses (no more than 4% for the US 1926-2016, and fewer still for global markets 1990-2020).
On the Morningstar piece: a terrible performance by Tactical Asset Allocation. Reminiscent of the Absolute Return sector after the GFC.
@ZXSpectrum48k: The Nil rate band is where the action will be at. Wonder if the Trussites’ end game is not to get the repeal of IHT but to reframe the narrative around the tax to make it harder to reduce the Nil rate band (and to introduce tiered IHT rates). I may be crediting them with too much strategy here.
I’ll vote for changing IHT from being estate-based to recipient-based.
My opening guess is that inheritance and other gifts should probably be taxed separately from the recipient’s income but using the same tax bands. In other words, each recipient would get the first £12k or so tax-free with marginal tax rate then increasing as per the usual income tax bands.
Probably not a vote-winner though.
I have no skin in this particular game – with no dependents, all of what is left of my wealth will go to charity, and my parents’ estate was nowhere near large enough to attract the attention of HMRC. So it would be tempting to favour IHT as a means of raising more tax revenue from other people. But reading some of the personal stories in the Telegraph leads me to favour raising thresholds and lowering rates to soften the blow while hopefully reducing avoidance. A compromise, as suggested by others.
But there’s another factor that needs addressing beyond the tax itself. Delays in the probate system and demands from HMRC for large upfront IHT payments add to the stress and difficulties of beneficiaries who may not be that wealthy themselves. A more efficient and compassionate way of dealing with estate matters might not remove all objections to the tax, but it would certainly take the sting out of it for those impacted.
NB I’ve never understood why SIPPs are excluded from estates for IHT purposes, and agree that this is an easy ‘win’. The current system encourages people to hoard their pensions, rather than take income from them (surely their intended purpose).
The rich who inherit are more likely to invest – so money will spend more of it’s time being economically productive and increasing supply, than if it sits with the poor who would keep it in cash accounts and use it to increase demand
So you’d get lower inflation letting it be more supply side, and the money, globally invested, would bring money into the country.
If you don’t tax something, the money will just recirculate again and incur other taxes – like vat, wage taxes, etc
@Neverland
Agree completely on pensions. Thought of that as soon as I pressed send!
The idea that pensions are the very best IHT planning tool is not what was intended.
Nor that by default ISAs are the best pension savings.
All in all, keep it simple, with minimal exceptions and a rate low enough that avoidance is not really worth while. And on that we have ended up with a tax system full of tinkering, unfairness, and unintended consequences that is ripe for a full rewrite.
The other way around surely. The poor would spend it and the rich would save it.
@Daz
And yet the only thing that Liz Truss seems to have achieved in her catastrophic premiership was to abolish The Office Of Tax Simplification
While I think it would be great if IHT was abolished, I would settle for indexation of nil rate bands. At the moment fiscal drag increases the effective percentage of IHT each year. That doesn’t seem right, same for other tax thresholds.
I note that the Daily Telegraph keeps using Sweden (a model of societal equality) as an example of a country that scrapped IHT. How can it be that IHT is necessary for societal fairness (a common argument) if Sweden has got rid of it?
@Claus
Sweden has a tax on real property of 0.75% per year. So a million pound house in Sweden (of which there are quite a few) costs £7,500 a year in property taxes
I’ve led a sheltered life of poverty but I don’t believe it’s remotely possible to pay £7,500 a year in council tax in the UK
In Sweden you get a deduction on the property tax if you have a mortgage – so in effect it’s an annual land value tax on physical wealth
No reason why we couldn’t do that in the UK – in fact we should
It’s a tax that gets a lot of attention because of the unrealistic extremes – many think it should be abolished and many think it should be 100%. Both are as bonkers as each other.
In my view is the rate is far too high and as a result there are many exemptions that allow those that should be paying to avoid much of it. A sensible suggestion in my view would be to lower the rate significantly (10-20% max), so the tax wouldn’t cause disgruntlement beyond those that simply detest death taxes, and eliminate virtually all of the exemptions so that all pay it, not a slither of it as is currently the case.
I think it depends on the perspective you view IHT from. If you think of the children inheriting large estates just because their parents were wealthy, it seems obviously a good idea. If you think of it from the point of view of the parent who has worked hard from the altruistic wish to provide a better life for their children, taxing them for dying seems very cruel.
Maybe treating all gifts as income would take some of the emotion out of it and close some of the loopholes the very rich use to avoid it.
You were feeling brave, I think, when you chose this topic but it needs to be aired – and so well done for doing so.
For myself, I have a dislike of IHT as it stands. I have difficulty in understanding why, at the end of a very hard-working life, someone should have the legal right to take my stuff and hand it out to the general population (including the feckless) rather than to whomever I choose. There are, if you like, no limits to “tuitio fidei” (protection of the faith) but there are for sure limits to the obligation of “obsequium pauperum” (helping of the poor). IHT seems pretty much an abuse of basic human rights.
I do sense that our country’s earnings capacity is decaying and that the enthusiasm for IHT among political types is related to that. If we do not make enough to pay for public spending, then let’s eat ourselves (or our accumulated wealth), seems to be the idea and it seems both morally unattractive and miopic for the long term. How about reforming state budgets and borrowing levels before we turn cannibal?
If, however, we decide that IHT is necessary or desireable (good luck with that), then first we must address present anomalies: For example, prevent use of trusts so that those who can afford to do so bypass the tax, and make such tax universal so that everyone pays a low % of surviving assets with noone (not even the pauperes) exempt.
> IHT seems pretty much an abuse of basic human rights.
It is news to me that I retain human rights after the last rites are read. Truly you live (die?) and learn 😉
But for the sake of technical clarity, absolutely no dead person pays taxes AFAIK. In many ways it’s the ultimate defence. Mr HMRC. Wotcha gonna to do get death taxes? Kill me? That’s why there are no death taxes, whatever the Torygraph try to make people believe. HMRC has brains enough not to try and flog a dead (groan) horse.
@Hospitaller
“IHT seems pretty much an abuse of basic human rights.”
[Insert insult regarding intelligence and follow-up personal ad hominem attack here.]
By your logic then all taxes are an abuse of your human rights: income tax; NI; VAT etc.
If you find IHT so objectionable you can legally avoid it entirely; leave your entire estate above the first £1m to charity.
https://www.gov.uk/donating-to-charity/leaving-gifts-to-charity-in-your-will
@Ermine
I’m not sure it makes a huge difference what one calls it. To me, it is government interference with the wishes of a person at death (or whenever they decide where they want their residual money to go at death). I think that is unconscionable.
@Hospitaller, @ermine and @Neverland (#39-41): it’s important to always bear in mind here that questions as to how the world should be, as opposed to a factual description of how it actually is now, are value judgments.
Peoples’ ethical frameworks, personal preferences and philosophical perspectives differ.
Decent arguments can be made from those differing perspectives to abolish IHT, to reduce it, to reform it, to increase its rate and/or to increase its scope (e.g. to reduce the Nil rate band).
I have no idea which of those arguments is right ethically/philosophically, if indeed any.
‘Human rights’ is, however, both an ethical subject and, distinct from that, a legal concept.
Philip Baker KC has written quite extensively online about taxation and human rights from a legal perspective.
In a nutshell, all taxation involves an interference with such rights, but this does not equate to a breach of those rights.
The right to the protection of private property is contained in Article 1 of Protocol 1 (A1,P1) of the European Convention of Human Rights, which the UK adheres to by virtue both of its membership of the Council of Europe (which is quite separate to the EU) and (since it took effect in October 2000) under the Human Rights Act 1998.
Crucially here, the rights under A1,P1 are not unqualified rights.
They may be interfered with without breaching the Convention, or the HRA, provided that the interference is carried out in a manner consistent with a functioning democratic society. This includes the levying of taxes lawfully provided for under legislation passed by representative Parliaments/Assemblies.
Under the principles developed under the Convention case law, the scope of taxation should be open and clear, and it is generally preferable that taxation is normally charged prospectively, but retrospective taxation does not breach the Convention or the HRA per se, and may well be permitted provided that it meets certain safeguards.
However, these are human made laws and concepts, not absolute rules like the law of universal gravitation or of the increase in entropy in a closed system. So people can and will disagree about them.
My concern is that arithmetically we’re in a trilemma.
Firstly: The economy is not growing like it used to. Median incomes in 2025-26 will barely be higher than they were way back in 2007-08. Frankly, this is a disaster. This and Brexit (which has substantially contributed to it) have badly hit the tax take.
Secondly: The workforce looks likely to shrink as the size of the next generation will be smaller than the present one. Our population is getting older on average. Trends in health care costs mean that it currently seems more likely that the care and treatment of the elderly will cost more in the future than that it will cost less. Restrictions on immigration will reduce the capability and the flexibility to increase the supply of labour to the economy, especially in sectors with significant current shortfalls or expected future requirements – such as healthcare and social care.
Thirdly: The national currency and the national debt (in gilt holdings) are no longer seen, as they were before recent times, by large scale international and institutional investors to be a safe haven investment. They now want a risk premium. The limited capacity (evidenced by the persistent sticky (core) inflation) in the economy mean that it is unlikely that unorthodox fiscal measures (i.e. more QE or outright debt monetisation) could now be carried out without significantly increasing either inflation or (if prices are to be kept stable) interest rates. Higher inflation and/or interest rates will hit everyone hard, but especially the poorest.
In short, we’re in a complete mess. I don’t know the way out but:
1. I doubt very much that unfunded tax cuts in the form of simply abolishing IHT would help much.
2. Rejoining the EU might help significantly, but I suspect it will still fall well short of solving all of these problems by and of itself.
3. Recognising that were in such a mess does not begin to get us out of it, but we can’t begin to start getting out of it until we do actually collectively acknowledge just how big of a mess it has now become.
@Hospitaller
“To me, it is government interference with the wishes of a person at death (or whenever they decide where they want their residual money to go at death). I think that is unconscionable.”
You know the judicial arm of the UK government has the ability to overwrite any deceased person’s valid legal will, right?
What you find unconscionable is in fact actually accepted legal fact.
@Neverland
Interesting re the Swedish property tax. I can see that causing a different set of complaints, but it could always be badged as a reform of Council Tax. However, I would also struggle with the feasibility of paying £7.5K Council Tax per year. Perhaps the Swedish all live in smaller/cheaper homes as a result?
@Claus
Its an annual wealth levy based on physical property. I think several European countries, e.g. France, do it also. I think some US states too.
For reference band H council tax in kensington & chelsea is less than £3,000 and westminister is less than £2,000. I doubt you can buy any band H property in either borough and walk away with much change for £10m …
@Neverland – The Swedish property tax has a ceiling of 8874 SEK which is approx 800 Euros. Until 2008 we had property taxes of 1% without ceiling. It is still proposed by leading economists as a means to decrease income taxes.
@Time like infinity #43
Sure it’s a question of values, which is why it falls into politics I guess. I was careful not to express a view on IHT more or less per se, being childfree means I don’t have a mutt in this race.
> Restrictions on immigration will reduce the capability and the flexibility to increase the supply of labour to the economy,
Hmm, one might query what restrictions on immigration. The post-Brexit immigration system, once you strip the theatrics out of the equation, is perhaps one of the unsung wins. EU freedom of movement tended toward freedom of low-waged movement. The current points based system tends to push legal immigration up the value chains.
Hm … in a city up north band G charge is almost £3700 and the properties are probably less than a tenth of the value compared to Chelsea and Westminster properties which are band H! I’ve always wondered how they are able to charge such low council tax in these expensive areas of London or what areas cross subsidise others in terms of council budgets.
@JP
“I’ve always wondered how they are able to charge such low council tax in these expensive areas of London or what areas cross subsidise others in terms of council budgets.”
Parking and business rates income. And they still cross-subsidise other councils there is so much money.
I am another who thinks IHT is an appropriate tax.
Tax in the UK is distorted by the ease of extracting it from PAYE income of the salaried employed (who also have limited opportunities to use tax allowances) compared with income generated from capital (such as rent income, or investment dividends). Levelling the playing field needs some sort of tax on wealth, and IHT seems to me the best way of doing this – it is the point when the deceased’s wealth is actually calculated.
But I agree that it would be better charged at a lower rate to more people, ideally such that complicated avoidance schemes weren’t worth the bother – and indeed exemptions could be largely dropped. The idea of charging the recipient has some sense but would be much more difficult to administer, far simpler to tie it to probate as a charge on the estate. If you wanted to make it more like income tax then make the threshold per recipient – for example the IHT threshold per recipient being the same as the current income tax threshold and then IHT charged at income tax basic rate.
Tax on gifts is a logical extension of IHT, but more problematic in practice and it is clear ease of application is fundamental to taxation. For example our daughter is currently at university, but legally an independent adult. We provide her with some living expenses, since she cannot access the full maintenance loan (which was means-tested on our income not hers). Is that a gift? What about her coming with us on holiday in the summer, which we pay for? Or taking her (or indeed anyone) out for a restaurant meal? There needs to be an unambiguous chargeable event, which probate on the estate following death provides.
(For what it is worth, I broadly agree with @Time like Infinity’s analysis of the role of tax, not to fund government expenditure since by definition it is the source of its own currency without needing a pre-existing “pot”, but to balance the money in circulation to avoid inflationary conditions. That has the consequence that first, an equal tax doesn’t have to be levied in parallel with each expenditure, and second, the way tax is levied should be fair in terms of social equity and directed towards those with the money rather than just those whose salaried income is easiest to tax).
@Jonathan B
“Tax on gifts is a logical extension of IHT, but more problematic in practice and it is clear ease of application is fundamental to taxation”
Germany and Holland manage to apply gift taxes; these are not foreign and exotic countries so different from the UK.
It won’t surprise you there are detailed rules covering what examples you use, e.g.: https://www.iamexpat.nl/expat-info/dutch-expat-news/gift-and-inheritance-tax-netherlands-how-they-affect-dutch-tax-residents#:~:text=The%20general%20gift%20tax%20exemption,exemption%20is%20applicable%20every%20year.
It may not be coincidental that Holland and Germany are much richer, more equal and have faster economic growth than the UK.
@Neverland, thanks for that. For obvious reasons (I am not Dutch!) I didn’t know about tax rules in Holland. I am sure the €55000 allowance would more than cover what we are contributing to our daughter’s maintenance during education.
But from my point of view that system fails one of the primary requirements of a sensible tax system: being easy to administer. The only way of reporting gifts would be by filling in an annual tax return (there would need to be annual returns to establish cumulative amounts of gifts) which is a significant burden. I recognise that in some countries (e.g. USA) tax forms are part of the culture but in the UK the vast majority of us are used to tax being calculated and charged via PAYE without needing form filling.
There’s strong feelings on the inheritance tax debate and they’re not always logical.
Case in point I’m in favour (despite being someone who will be clobbered by it or would have been if my father hadn’t left the country) ill likely be a recipient of half his £3m plus estate. For many of the same reasons as the investor. I have built what I have for the most part myself
My dad on the other hand who grew up in poverty and never inherited anything and is self made is massively against it. Or at least at the level it is at the moment . He says it’s far too low a threshold nowadays a million ain’t what it used to be and points to the US system as others have done. Go figure.
Fwiw I think lowering the % would help massively. Set it at 20% with no lower threshold and have done with it and do away with all the loopholes to avoid it.
@Neverland
“Sweden has a tax on real property of 0.75% per year. So a million pound house in Sweden (of which there are quite a few) costs £7,500 a year in property taxes
I’ve led a sheltered life of poverty but I don’t believe it’s remotely possible to pay £7,500 a year in council tax in the UK”
Well, I live in a house in North Wales valued at about half a million and my council tax is £3800. Not wildly dissimilar.
There seem to be two debates going on here:
1) should inheritance tax exist?
2) If it should what is the best way of running it?
I have a simplistic moral view that redistribution through some form of inheritance tax is good for society. The idea that wealth should cascade down the generations unimpeded is odd. It assumes that the recipient generation will be as diligent and intelligent as those that created the wealth. That is statistically unlikely (reversion to the mean). So from societies point of view what is the value of allowing the wealthy to pass on their money unimpeded? Does the fact that the same family has owned a particular estate for x generations mean that the current generation is producing the most value for society that can be achieved with this money? I would doubt it. There is a societal value in stirring up the distribution of money in each generation. The saying “rags to rags in three generations” shows that dynastic management of wealth is seen as not necessarily the best. A proportion of that wealth could with advantage be used to provide opportunities for those with fewer resources. Because the plain truth is (no matter the earlier comments that if you have got it, you will succeed) that we are not an equal opportunity society. The wealthy have resources that enable their offspring to succeed. Others, with access to fewer resources may struggle and we lose many potential entrepreneurs, business people, artists and scientists, because realistically they never had a chance.
So, I am in favour of inheritance tax because it is bad for society to allow wealth to accumulate and concentrate generation by generation. It may be a convenient way to create revenue for the state, but its best potential is in improving equality and social mobility.
As to how it should work, there are plenty of ideas in the comments. I believe it would be much clearer to everyone what was being done and why if it was seen and taxed as income by the recipient. The plethora of loopholes and ways to avoid IHT should be removed. Everyone should pay.
I wish it could be as simple as that, but it cannot be. There will always be special situations where it creates problems and some exceptions will always exist, but they should be carefully guarded. If the heir already lives in the home of the testator (perhaps providing care), it would seem unfair to pitch them out. A genuine family farm, being passed onto an heir that will actually farm it, might be another exception. But we need to get rid of this nonsense of buying assets that can be transferred without IHT just to avoid IHT, not to deliver the benefit for which the exception was created.
@TI. As you stated “we’re poorer as a nation than we were, not least due to a previous populist decision we made a few year ago. That economically self-destructive move is already costing us at least £40bn in lost tax receipts …. So it’s a serious question. If you won’t tax the dead than who?”
The people who voted for the self-destructive move. Around 17.4mm voted to leave, so they can just chip in £2,300/annum each.
Has anyone studied how much of the average taxable inheritance actually is “double taxed”? Surely most of it would be capital gains after a lifetime of investment and thus untaxed until disposal.
(That AI drone story has been debunked btw, the Col. who described the “simulation” walked it back)
Maybe better to describe America as tax-allergic rather than low-tax. For examples, capital gains on primary residence is taxed on every sale (albeit with 250k per person exemption), and there is no ISA equivalent. After insurance costs, max 401k and taxes, my take-home pay is just over 50% of gross.
A great thread on IHT all.
Too complex to pick apart. And I hold dissonant views – as ZX
Plug all the loopholes and then the price of farmland crashes? Perhaps.
We stop planting trees as who would see a return on them? Or should we consider state ownership of these assets with generational management if the next generation desired to do the work? Do we tax any asset that is off-shored close to death? Do we tax SIPP accumulation at death? Etc,etc.
I doubt any of the above would win votes, which is all that matters at the moment to any party.
I have a “Mutt in the race” but a sole “mutt”. We plan on not having an estate large enough to be taxed at our deaths. Even so this is a generous amount if we manage to approach the allowances. Had we had many children, this would be less generous. If IHT was about “fairness” to the living, perhaps it should be set per living heir? Fairness to the dead, in my opinion, does not count.
JimJim
Getting other people to pay for the stuff you take and enjoy is bound to be popular. If you don’t have children, what’s not to like about IHT. Sure, you can construct a moral egalitarian narrative around it but, at heart, it’s so much easier to take than it is to earn (aka The Shoplifters Principle).
I’m inclined to agree with @old_eyes ‘simplistic moral view that redistribution through some form of inheritance tax is good for society’. Gary Stevenson at Gary’s Economics had an interesting idea about a wealth time limit (120 years) which would force spending back into the economy. I’ve no idea how that could be made to work in practice or what that could mean for the economy, but it does seem wrong to be able to tie up huge wealth and accumulate assets ad finitum for the benefit of future unborn generations of one family, helped presumably by tax loopholes and avoidance avoidance schemes. Personally, like others, Id go for a higher threshold and lower tax rate, but with a higher band above a certain level, and removal of all the loopholes.
Mr Optimistic,s remark re children is interesting
Arguably people who don’t have children have no direct stake in the future so IHT is a no brainer
Having kids is such a huge life event -again arguably only second to being born that ignoring it is likely to skew all major financial decisions by investors
It would be interesting to know how Monevator bloggers are parents or not and then factor this major item into the IHT debate
xxd09
The challenge with IHT is that it’s a tax on unexpected death and poor planning.
20% of households have £1m wealth according to ONS data, and those skew vastly older than average. So the fact only 4% of deaths result in IHT implies the vast majority of wealthy households are finding ways to get around IHT.
A removal of the cap gains basis reset on death would cover most of the money lost via abolishing IHT
@Fatbritabroad. I’m somewhat with your dad at an emotional level. I’m considered “self made”. No obvious advantages. Poor, inner city comp, autistic/ADHD. After the Tories decided to sell their council house from under them, I’ve also had to support both my parents (one disabled) for the last 25 years. Not only did it ruin my dream career but where is my 40% tax rebate for a negative inheritance?
By giving my children enough money to make them FatFIRE instantly, I’m just trying to correct for how society f**ked up my life and not let it happen to them. Moreover, privilege is not just about money. It’s so embedded into UK society. I feel money is the only way that I can slightly level the playing field for my kids against all the other disadvantages they will have.
It comes down to trust. I don’t trust society to use my taxes wisely anymore. The idea of giving more tax back just to waste on NHS staff, Brexit, or to give retirees 10%+ pay rises drives me nuts. Not a logical thought process but a gut feeling has been building now for a number of years.
@Imram/ZX
No resetting for gains does seem reasonable – is anyone aware of any analysis of tax £take by category/rule, and more importantly what potential rule changes would do +ve/-ve.
It seems unreasonable for the average tax payer to pay for removal of IHT, but changing it so something better would be acceptable (especially if it’s simpler and cheaper to operate)
With the loss of a meaningful CGT allowance what’s the chance of indexation making a return? Would help with BTLs, and house prices.
Ps have kids, will pay IHT, will not inherit much
I’m sympathetic to the theme of lowered IHT rates while also reviewing the IHT escape options. As a slightly older dad I can imagine my dumping ‘cash’ on youngish adult offspring – purely driven by the 7 year rule – could be quite limiting on them (maybe they spend it rashly then dwell on regret, perhaps it reduces their appetite for risk taking, etc). I’m only referencing sums that are relatively large to still formative minds (need not be sums readers here may think of as ‘life changing’). Gifting is surely how most in-the-middle / non-trust fund types currently sidestep IHT? So pay income tax on received gifts over £n – yes. The financially engaged will still game it, but in a managed way.
Auto-enrolment has been a rare example of common sense actually applied successfully by a government. Related to the ever older population and fewer proportional workers – instead of looking at IHT (or income tax) on inherited SIPPs, perhaps oblige an inherited SIPP to be consumed into beneficiary SIPP(s)? The money stays invested and serves the beneficiary only in their retirement – until then, they still must work hard and be productive. By relieving the stress of ‘saving for retirement’ somewhat, it may foster entrepreneurship in working years? The lifetime allowance, in some form, would cap generational wealth passed via SIPPs.
I can only repeat what Jim said “if inheritance tax is a fair tax and is necessary then everyone pays it, no weaseling out for the King, landowners like Duke of Westminster, business owners, offshore holdings etc etc, fairness is the issue I have.”
But, as ever, it is those in the middle-middle class that get stiffed, not the toffs or elite, or the feckless who wasted their lives. But are the tories trying to get the middle-middle class on board to justify protecting their own wealth?
Note, I categorise the middle-middle class as those likely to build enough wealth to typically leave in the region of £500k-£1.5 million estates mainly through home, pension and ISAs and such, but not savvy enough to use vehicles like offshore trusts, forestry and agricultural land to dodge IHT. Typically professional employees or small business owners.
I would maybe make a simplified IHT threshold where the first £1 million (linked to CPI) of assets are exempt from IHT, as was originally intended. But I was never sure about pensions being specially made IHT exempt – that isn’t their primary purpose.
The £1 million limit should be made of any combination of family home or other property/assets, both inside or outside of a pension wrapper rather than people having to engineer their assets in a specific way.
As for the other articles, I like the Mad Fientist article on the 4% rule. I never subscribed to the idea you had to start with 4% and then increase every year by inflation.
I’m still working but plan to be starting at around 5% withdrawal rate from 55-57, because I’ve seen my own family spend less and less each year as they age and their health and activity declines. While you want at least some inflation protection (such as rising dividends over time) over a flat rate (which is why I don’t like annuities), there is the state pension kicking in at 67/68 to take out some of the inflation sting.
Bad market crash in the early years just after retiring? Cut discretionary spending, only spend natural yield and/or cash savings, maybe even take the odd IT contract or part time job for a year or two, or whatever your niche is.
@all — Just chipping back in to say this is a fantastic, reasoned, and admirably respectful and on-topic discussion of a thorny subject. Cheers all!
@TI #69
All credit to you!
@Factor — Cheers, I do try to nudge things along with the moderation and so on. But in this case my intervention appears to have knocked the discussion on its head! 😉
> use vehicles like offshore trusts, forestry and agricultural land to dodge IHT
It’s really well past time that we did for the agricultural land exemption. This was aimed at the reforming Labour post-war governments that started to hit the aristocracy, they yammered “but you wouldn’t want to put yeoman farmers off their land”.
But it’s ended up with serious pathologies for UK agriculture. The aristocracy use agricultural relief to IHT-proof their dynastic wealth. They themselves CBA to be farmers, so they hire contract farmers to do the dirty work. They then squeeze the hell out of these guys, so they have to monocrop with chemical fertilisers and you can see the effect on the soil, it’s used as blotting paper for the chemicals, which gets a decent yield in a good year. Kills off everything that moves though – Britain’s annual count has lost 73 million birds over 50 years and those that want to farm in less aggressive ways can’t get the land. As well as clobbering our birds there has been a gradual depletion in trace minerals in our food across the decades, and it’s time we clobbered the landed gentry of this convenient way of storing dynastic wealth across the generations, because of these consequences. These aren’t yeoman farmers.
No it’s not gonna happen, is it?
@Dick a common approach (depending on wealth level) is to use a FIC to wrap the investments which enables you keep control of the investments (and pass control to say a sibling on your death if you deem more appropriate) while beneficial ownership for IHT purposes goes to the children
If inheritance is all about luck, and not whether your parents have been savers for a rainy day, nor whether they have been financially savvy enough to give away their assets in good time, nor setup their finances carefully using the very generous gifting rules regarding excess income, nor put the bulk of their savings into AIM stocks in the last 2yrs of their lives…. then how about we also have a tax on gambling and lottery wins!?
Slightly off topic, but I’ve often wondered whether IHT could be ring-fenced into some kind of “Sovereign Equality Fund”.
Rather than going into the standard tax pool, the IHT receipts are ring-fenced & invested, with the yield being pumped into “levelling up” initiatives / infrastructure.
By the time you banked 10 x years of IHT @ £7bn, it would be spitting out a significant yield to enable real change.
Perhaps an economist would articulate why this is a bad idea, but the reality is our governments don’t look beyond the next 2-3 years, which is perhaps 1 reason as to why the UK economy is stagnating
My suggestion for IHT reform would be:
– Threshold of £1m
– Headline rate of 20%
– Remove all existing breaks and loopholes (agricultural land, primary property, PET, etc)
– If recipients of inheritance are children under the age of 18, have the option to defer IHT until they are 18, and calculate it at that point. Which means that if the estate spends money on children, they leave the estate without being subject to IHT.
The Family is an interesting social construct which seems to have stood the test of time -thousands of years?
It is a constant thorn in the side of the state with its ability to outmanoeuvre bureaucrats and their policies of “improvement “ ie instituting social and cultural change-redistribution of wealth etc
The Family also greatly amplifies the strengths of the more favoured individuals in society if they chose to operate this way rather than as an individual
The Family does seem to be the preferred default choice of human beings
Good luck to any politician who takes on the Family who will play the game of Life(and Tax) with very few holds barred and for keeps!
All we can do is hopefully tinker round the edges and probably would achieve more useful actual change by working with what is a tried and tested successful unit rather than coercion which will most likely fail -again!
xxd09
A number of commenters have mentioned £1m as the practical threshold for IHT for basic rate taxpaying parents with a family home. However, for divorced parents who never remarry, it may be £500k and £325k. Only one parent will own the family home, has probably had to be thrifty most of their life because of the divorce settlement and their estate will have an IHT threshold of £500k. The children may well pay for their parents’ divorce through IHT.
Lovely if you don’t need the inherited money. It’s saved my husband and I both from being destitute, and no, we didn’t qualify for social support (good luck with getting help if either of you has chronic ill health, and god save you if both of you do). Both of us were almost at bankruptcy through not being able to work AND not able to get any help. Then an inheritance. Thank fuck for it. It’s not a lot but it was enough to keep a roof over our heads and provide for basic living costs once I started from scratch learning how to invest so it could do that. It’s not a learning curve I recommend to anyone. The money is only enough with both of us alive. If my husband dies before me, I am still screwed unless I inherit some from my mother. Nice work if you can get the earned stuff. Congratulations.
Hey TI,
From a selfish point of view, it would certainly be in my interest for IHT to be lower or certainly no higher as it could form a safety net for me where I don’t worry about the 4% rule or money running out as much etc. The reality is though, I don’t want to lose anyone at all and even if it’s practical to consider such things, I agree that if there is no IHT or lower amounts than now then it could allow inter generational wealth to continue more or less forever without any work or output needed by anyone their entire lives through no effort of their own. I know there are ways around it to some extent but still, I agree with the principle of stopping that from happening or lowering the possibility.
TFJ
For that reason, I think I am with you but when it comes
For those who think that the rich get away without paying IHT – the Duke of Westminster being cited on a couple of times – they use a scheme where you pay as you go on the trust and have to pay a 10 year anniversary charge.
The effect is that you don’t have to pay on the death of someone because you are paying all along, which allows you to budget for the cashflow of it and pay on that basis rather than a sudden amount of money.
You don’t actually save money (unless you’re very unlucky and people die all the time).
TI, I totally agree with your comments. There are good reasons for taxing inheritance and IHT tax should not be abolished; ideally it would be improved by removing exemptions. Surely the most obvious first step would be to stop SIPPs being an inheritance tax avoidance tool: it would seem to make sense for any remaining funds in a SIPP at death to be treated as paid out to the holder; on a lifetime basis, this would put SIPPs on a similar basis to ISAs (except for the tax free lump sum).
More fundamental reform is obviously politically very difficult and would need to tax gifts made more than 7 years before death. Taxing gifts as recipients’ income seems the most elegant idea but I can’t quite see how this would work in practice, eg if someone with income of £20k receives a gift of say £200k to assist with house purchase, it would seem unfair to treat this person as having income of £220k. At the very least, the recipient ought to be able to spread the gift over several years’ income.
It might therefore be more practicable to extend IHT to all gifts above an annual limit made over a person’s lifetime. I don’t see that requiring such gifts to be included on a tax return should be too much of a problem these days.
“You don’t actually save money (unless you’re very unlucky and people die all the time)”
https://www.theguardian.com/money/2016/aug/11/inheritance-tax-why-the-new-duke-of-westminster-will-not-pay-billions
“Instead of one-off taxation, trusts are subject to charges every 10 years from the anniversary of their creation. Known as the inheritance tax periodic charge, it can amount to 6% of the funds held. There are, however, plenty of loopholes. Agricultural and business property relief applies, and the Grosvenor assets will have been managed to take full advantage of that.”
Hard to square the idea that they don’t save any money with how much they pay clever people to set up and manage such schemes. Just for the smoothed cashflow is it?
Echo others comments that this is a great discussion thread btw
@peejay:
“if someone with income of £20k receives a gift of say £200k to assist with house purchase, it would seem unfair to treat this person as having income of £220k. At the very least, the recipient ought to be able to spread the gift over several years’ income.”
How is that more unfair than someone paying 45% income tax + NI on a one-off massive bonus earned via their work? They also can’t spread it over many years.
@xxod09 (#77), that’s a useful perspective. Debate on IHT tends to centre on whether the tax burden should fall on the estate of the person dying, or the beneficiaries as these two are separate individual entities. But in fact the family is more like an organisation that self-perpetuates, so in effect it is the institution being taxed as each succeeding member dies. It’s quite understandable that an institution that has accumulated a certain amount of wealth will use whatever mechanisms are available in order to ensure its survival with the maximum amount of assets intact.
Perhaps the wider context is that tax avoidance (as opposed to evasion) has become less socially acceptable, and in times of general economic hardship, there is resentment of those considered wealthy. Personally I don’t have a problem with people optimising their affairs in the best interests of their descendants and/or themselves. A balanced solution needs to be found, but not one rooted in the politics of envy.
@StellaR — Sometimes the debate is framed as the politics of envy, obviously, especially at the higher echelons. Though with that said, when you live somewhere like London and you saw pretty much *nobody* who didn’t work in the City buy a property with 100% their own saved money/earnings in Zone 1-2 for almost 20 years, it does make it hard to rise above…;)
But the flipside of envy is complacency, and how inheritances (/general family wealth) mask fundamental social issues. Such as for example, that severe unaffordable housing issue that I mentioned was already manifested in London 15-20 years ago. (Those friends eventually learned to tack a “we’re so lucky” onto their property buying with the Bank of Mum and Dad reminiscences. They didn’t in our 20s. It took an unprecedented house price boom and in some cases for them to become employers with struggling staff to understand.)
Or take the poster who (bravely) shared up the thread that for them an inheritance has been a lifesaver, perhaps almost literally.
Yes that’s fortunate for them. Who’d want to take it away?
But what of the vast majority of Britons who do not get meaningful inheritances, and who can just as easily get knocked over by misfortune?
I do suspect that a country run largely by privileged people from middle to upper-middle class backgrounds (on both sides of the house these days) does struggle not to overlook their own good fortune.
IHT is to me a way to redress some of these structural imbalances, which might otherwise become even more entrenched.
I am all for people getting very rich under their own steam, growing the economy and the skills base, and spending it how they like when they’re alive.
Their kids who did nothing at all to earn it, not at all. Extremely relaxed about them being taxed on unearned windfalls.
But I do accept the points about the parent wanting to work for their kids and pass down some wealth etc, and that there is a range of views on the importance of family, inheritances etc.
For me, that is why I wouldn’t have IHT at 100%, even though I see a non-trivial case for it, but something more moderate and ideally, as everyone seemingly agrees, less avoidable.
Taxing all gifts above an annual threshold (below which you don’t need to declare) seems a no-brainer. Maybe I’d be okay with £50,000.
I think many commenters on here are like me: thinking the tax system (not just IHT) is suboptimal in its inconsistency across different sources of money acquired (earned or unearned) and in not achieving its potential to promote a social equity that would actually be of national economic benefit. But at the same time organising our own finances to optimise my situation in relation to the tax system that exists, and in that sense having an investment in the status quo.
At the very least I would like to see all sorts of money acquired taxed equivalently, with the same total rate applied (in other words income tax plus NI for salaries would be matched by the same total rate for rental/interest/dividend/inheritance/gift income) with straightforward progressive rates as you earned more without the complications of clawback of thresholds or pension allowances.
I am not sure what you would do about repayment of student loans though, which is another tax in all but name.
You can’t really have a discussion about IHT either way, without looking at things in the round.
I see the same old chestnuts still get trotted out about “unfunded tax cuts”.
There is NO SUCH THING.
There ARE unfunded SPENDING COMMITMENTS.
See here: https://obr.uk/forecasts-in-depth/brief-guides-and-explainers/public-finances/
So for 2023/2024, spending £1,189 billion. Receipts – £1,058 billion.
That’s your problem right there – government trying to do too much (“the Government must do something!”) and none of it well.
What we need is a grown-up conversation about what we want government to do and what we’re prepared to pay for that.
Right now, we’re cursed with the worst of both worlds – Scandi levels of tax and American levels of public service…
@Dragon (#88): Depending on your viewpoint current spending on the NHS, schools and the police etc to promote health and longevity, learning and opportunity, and order and stability are social goods well worth their price or an ineffective an inefficient use of resources which could be delivered better by other (i.e. private sector) means.
However:
1. If the latter is asserted it is a counter factual and so the alternative needs to be identified and supported. The US spends a colossally higher proportion of GDP on health, most of it delivered through private insurers cover, but it has demonstrably poorer health outcomes overall: i.e. huge numbers not covered by healthcare, lower and falling life expectancy than its peers etc. It’s only one example of course, but the US experience is a major one and is suggestive that the alternatives to systems of public healthcare, like the NHS, are not necessarily either better or cheaper, and may therefore be considerably less efficient.
2. On unfunded tax cuts v unfunded expenditure: this analysis would be true for a person or a business but HMG controls its own currency. It can never under fund expenditure because it (and fractional reserve banking in the private sector) is the source of the currency and money creation (as with every other nation with control of its currency). The public Exchequer is not like a corporate treasurer account, another business account or a personal savings or current account. Beyond what they save, spend and borrow private entities have no control over how much money they have in their accounts. Government’s can create money at will in whatever amounts they chose. Since 2009 the BoE funded £895 bn of expenditure in this way. That expenditure was not covered by taxes or by borrowing. But it was not unfunded. Political anecdotes about public expenditure being like a household budget or their being a national credit card limit may sound beguiling and familiar, but factually they are simply incorrect.
3. The question is not one of funded versus unfunded expenditures. It is whether or not the economy has the productive capacity to sustain certain activities at a certain level in a non-inflationary way at a given interest rate. We’ve got a (the last time I looked it up) £2.4 tn or so GDP, but we’ve also got a core inflation problem (last month’s reading went up from 6.2% to 6.8% p.a.). This is the relevant inflation rate, not CPI (which fell from 9.1% to 8.7%), because it strips out volatile elements including commodity, energy and fuel.
4. In these circumstances, the effect of reducing taxes is to put more liquidity into an economy with high and rising core inflation. That is likely, all other things kept the same, to further increase inflation. In this sense, an unfunded tax cut is one without one or a combination of a matching fall in expenditure, a rise in interest rates or a rise in another head of tax to try and cancel out the inflationary effect of the tax cut.
5. It must be remembered that public expenditure is part of the economy. It contributes to GDP, employment etc. just like the private sector. It is not somehow separate from the rest of the economy or parasitic upon it. They are one and part of the same system.
@Dragon, I am not sure that even the idea of unfunded spending commitments is helpful. As @Time like Infinity points out above, the way the government funds things is not by drawing from a pot of tax receipts – they “own” the currency and can simply make an electronic payment. What matters to the economy is that this doesn’t expand the money supply to an extent which is inflationary, which requires money to be taken out of the system usually through tax.
As a thought experiment, I think of the government funding the recruitment of 10,000 qualified nurses who are currently not in work. They don’t need to increase tax by the £400M or so it costs. That is because about 30% of the payment will come straight back in income tax (and VAT on spending) anyway. And some of it might get locked up in a pension fund where it doesn’t add to inflationary pressures. And even beyond that, there is the possibility the resultant increased health activity will allow some people currently on sick leave to return to work and expand the economy – it is fine for the money supply to grow in line with growth of the economy.
@Time Like Infinity (89) and @Jonathan B (90)
Depending on what exactly they do, and how they’re run, I think we can probably all agree that things like state provision of Healthcare, Education and Law Enforcement are (potentially) social goods, so I don’t think we’re in disagreement there.
Indeed, I’d argue that those things are, along with “defence of the realm” and some other things like perhaps utility provision and mass transit, also social goods where they could (in theory) be better provided at government level due to (again, in theory) things like economies of scale and relative bargaining positions.
The problem is that, to use an awful corporate buzzword bingo term, government is drifting way beyond its “core competencies”. If you look at how much duplication of effort there is, how much wastage and the sheer perversity of some outcomes, you begin to realise how much money is wasted. To use just two examples:
1. All the different local authorities having different pension schemes, which are different from the one for the central civil service, which is different from the one for the NHS, etc etc. There is surely an argument for centralising all those separate, disparate schemes into one. Potential cost savings from streamlining administration would be massive.
2. In Scotland, the SNP keep thresholds for income tax lower than England/Wales, and have higher actual % rates as well. Only, it doesn’t actually raise any more money, because (a) at the margins, people adjust their behaviour to pay less tax (put more into pensions, reduce hours worked, etc), (b) Scotland’s Barnett Formula allocation is proportionally reduced, and (c) cost of administering a system which is divergent from the rest of the UK. So, less money raised, so they’re already talking about bringing in new rates between the 42% and 47% bands. What do you reckon – that the problem will rinse and repeat?
I’m heartened so see at least 2 people know how money creation actually works (without veering off into tinfoil hat territory 🙂 ). You are of course right, but that’s only half the picture. Of course if you control your own currency (damn those Brexiteers, what did they ever do for us? 🙂 ) you can never run out and always “print” money to pay your bills.
The problem is that the UK, like most other countries, doesn’t exist in a vacuum and needs to import a lot of stuff, from oil, to energy, to food, to finished goods. These things need to be paid for to people who are outside your “closed system”. If they see you devaluing your currency, they simply adjust their prices upwards to compensate. That’s inflation.
I am totally with you on there not being any issue with the money supply increasing if the economy is also growing. The problem the UK has I think though is that the rate of growth in the money supply is exceeding the rate of growth in the economy in terms of more widgets being produced or more services being rendered. Hence why, as you say, taxes are going up and so are interest rates.
Like “unfunded tory tax cuts”, I’m afraid that I don’t agree with that other old saw about “government budgets are different to household/individual/corporate budgets”. They’re exactly the same – at least when it comes to borrowing that is. It all comes down to how creditworthy you are perceived to be by your lenders. Indeed, was that not what everyone was getting excited about recently? “Liz Truss trying to buck the bond markets” ?
It’s all linked together, but few of our politicians appear to realise this (or even if they do, question if they care?)
I saw something just recently about another one of these UBI trials being done – to be funded by philanthropists and big charities. I’m sure the (as usual, small scale) trial will be a roaring success from which all sorts of extrapolations will be made. The problem will be, as ever, when they try to scale it up to national level. And the problem there is the age old one – someone somewhere is paying for that “free stuff”.
We had a national level trial of UBI for a couple of years recently – it was called furlough. The galloping inflation we’ve seen since is simply the obvious outcome of that – if you pay people 80% of their former salary to produce 0% of their former output, while certain base level demands remain, guess what …
Now, obviously there’s an argument that this was a price worth paying to avert a potential jobs bloodbath / recession, but I’m not sure the politicians ever explicity pointed out that the options are either (a) pain now, or (b) pain later, so they’re being a more than a little disingenuous just now…
So much has been blamed on poor old Liz Truss that I’m just finding it hard to actually believe she caused all those problems. I think they were there and about to blow up anyway, no matter who was in the hot seat.
I think the expression was “in office but not in power” and I think that sums her tenure up perfectly. She can’t have actually caused all this because she didn’t actually do anything because she wasn’t allowed to. Even the esteemed hosts of this blog seem to be saying that she was essentially right, but got her timing / PR wrong.
I’m almost tempted to cynically wonder if she was offered a “deal” by the men in the grey suits of the “you take the rap for all this by saying a few outre things, act as the safety valve, and behind the scenes, we’ll see you alright in terms of your own financial wellbeing … ”
Especially when you see that she still qualified for the PM level pension, and appears to be doing rather well on the dinner speech circuit …
As you know, the UK its own currency independent of the Brexit decision — thanks most recently to Gordon Brown, who was ready to quit government if we joined the Euro nearly 20 years before.
The same Gordon Brown who is naturally a fervent Remainer, and who knew well like many informed Remainers all about the great deal we chucked in the bin for absolutely no gain whatsoever.
Thank you to @Dragon, @Jonathan B and @TI for the thoughtful responses.
I think that there is less difference here than may meet the eye . It’s as much about the framing of the issues, and how to look at the problems, than about disagreement on the content of those issues.
@Dragon’s point on pension scheme consolidation mirrors the conclusions of the “Investing in the Future: Boosting Savings and Prosperity for the UK” May 2023 report from the Tony Blair Institute. It seems to be an excellent idea, although the mechanics are likely to be fiendishly difficult (i.e. the report identifies 27,000 DB schemes, including closed ones, nationwide, some with just a few members).
A disclaimer and a clarification:
1. I am not an economist and, unfortunately, never had the opportunity to study the subject academically.
2. I certainly didn’t mean to give the impression that the UK economy could/should be considered as a closed system. It is part of both a regional and a global trading (and broader economic) system. @Dragon is right to point to the net import position of the UK in this regard.
From what I’ve read and understand though, MMT appears to be the theory which is least at variance with how I can make out that money creation etc actually works in an economy, as compared to the various alternative frameworks, esp. the Austrian school.
However, I do not understand the MMT model to be giving carte blanche to unlimited spending.
What instead I understand MMT to be saying is that what matters is the productive potential of an economy at a given time, rather than notionally balancing the books, as a business or household would have to.
Sadly the UK’s productive potential and its ability to grow as an economy (and through doing so, to provide material comfort and security to its citizens) seems to have taken one heck of a knock in the now not inconsiderable period of 15 years since 2008.
Things also don’t seem to be in a place to get much better any time soon. I really hope that I turn out to be wrong on this. I don’t enjoy being a declinist.
I agree with @Dragon that internal and external perceptions of the integrity of a national currency are important and that this is a matter of confidence.
But it is not integrity in the sense of an accounting exercise in matching assets and liabilities, and expenditure and revenue. To that extent, the analogy with household and business expenditure remains incorrect/inapplicable.
Rather, it is a case of whether or not, in aggregate, people believe that the currency both retains utility as a medium of exchange and as a unit of account; and also can serve (to some reasonable degree) as a store of value.
As @Dragon rightly points out, the latter is particularly important to large scale international institutions lending to the UK through bulk gilt purchases.
I also agree that Liz Truss did recognise there was a big problem, and that muddling through would be unlikely to turn things around.
However, as far as I could tell in the fleeting brief period of about a month between the end of the national period of mourning for the late Queen and Truss sacking her Chancellor, she didn’t actually appear to offer any solutions other than tax cuts targeted at the most wealthy. The international markets certainly were not impressed with that, or indeed with anything else her administration did or said that it would do on the economy side.
Unfortunately, realising that there is a problem and having the courage to say so (for which I do give Truss some credit) and having a workable, thought through and effective set of solutions are not the same thing.
An awareness of a problem and the willingness to face up to it is a precondition, normally, for tackling it; but it is not sufficient to deal with it without also having a solution that actually can work.
I don’t claim to have any workable solutions myself, but I don’t think that Truss did either.
On the control of currency point, this is a very complicated issue, but as @TI rightly points out, it was not part of the Brexit debate. The UK decided not to join (and thereafter decided to stay outside of) the Eurozone.
The Euro seems to have worked well for Germany, but perhaps not so well for Greece, Italy and Spain, at least in the 2010s.
Personally, I think that the Eurozone crisis of 2010-2012, and how that was arguably not well handled by all concerned at the time, played a role within the UK in shaping perceptions of the EU in a negative way in the years immediately prior to our referendum. I speak as a remainer (and, indeed, as a rejoiner), but as one who does try and understand and emphatise with the different strands of leave opinion.
Because we’ve now got a seriously worrying core inflation problem in the UK, I do agree with @Dragon that we can’t obviously spend our way out of this particular predicament.
Unlike a deflationary (2009 or 1929-32) scenario, more spending which is not sterilised by tax rises and/or higher interest rates is just going to make an inflationary quagmire worse
To reiterate though, I don’t think that we should be too worried, within reason, about headline measures of RPI and CPI, because we can’t do much on the supply side in the short term on inflation which is imported from fuel and energy dependence. It’s core inflation that we need to watch. Unfortunately, the core inflation picture does not look pretty and seems to be deteriorating.
On the issue of IHT, there have been many excellent ideas in the thread coming at this from various persuasions and perspectives.
I’d just take this opportunity to echo @ZXSpectrum48k that with just £7 bn p a. raised through IHT out of £787 bn p.a. collected by HMRC (and indeed, as @Dragon points out, £1,058 bn p.a. revenues raised overall) IHT is not moving the needle at the moment.
If it is going to make a difference then its scope would have to be broadened (e.g. by taxing the recipient as if it were their income, by getting rid of the Nil rate band or lowering it, or by reducing or eliminating the exceptions) and/or its rate increased. These may well be good ideas (depending on your politics and preferences). I am doubtful though that they are obvious vote winners.
However, until a party proposes one or another option we won’t get to see how it goes down. The 50 Tory backbenchers’ proposal to abolish IHT seems to have barely registered this week, which suggests that the electorate has other priorities at this moment in time.
Incidentally, for a really insightful long term take on inflation from a historical perspective, I’d recommend checking out David Hackett Fischer’s “The Great Wave. Price Revolutions and the Rhythm of History” (OUP, 1996) which looks at prices from 1201 to 1993.
I assume that for the majority, IHT liability stems from home ownership and perhaps for some, added frugality necessitated by years of uncertainty. Taxes and dues having been paid; it seems wrong for the state to claw back 40% above an outdated allowance. For many, it’s the only way of ever being able to help their children in whatever way the recipients choose. Many of the so called “hoarders” worked in conditions that I’m sure the majority of subscribers couldn’t tolerate for a week, let alone a lifetime of “clocking on” all the while convinced that it was for “the kids”. So why should they not be allowed to help their family in the only way that they can, instead of it being wasted and squandered by successive inept politicians who themselves have some of the best salaries, pensions, subsidised restaurants, and expenses which some still continue to abuse with impunity.
By all means, tax them. But let it include everyone, from the late Queen down, no avoidance, no trusts, no get-out clauses. And include Sipp’s, non-Dom’s, et al. Why stop there, apparently the net cost of pension tax benefit is £40Bn increasing annually. I’ve never accepted that someone earning above a predetermined limit is entitled to 40% pension allowance, whilst the lower paid allowance is 20%, that’s where it all starts. So, why not rescind the £60k annual pension allowance too. The 7Bn that IHT brings in is peanuts, but begrudged by many who in reality are far better off. And while I’m here, the UK pension was increased by 10.1 % but it’s still 29th out of 38 developed countries. And those who retired 20 years ago and have the temerity to survive, get even less. Don’t take my word for it, tune in to Ch4 10pm.
If the UK had the same “family connections” as some Med, East European, Asian, and Indian countries, then maybe there would be no “hoarders” as previously mentioned, but sadly, for many, UK pets replace family and loyalties.
Judging by some of the comments here, I would be seen as middle class. Although, all those years ago, I never had a ” pot or window” so I can fully understand those who are fortunate and their reluctance to pay. Thanks to an incompetent GP, and an even more incompetent nationally known hospital, I buried my dependent, so I’ll avoid IHT via charities.
A great and enlightening blog, always appreciated for the content and comments.
@Time Like Infinity – thanks for the pointer to that article on the Tony Blair Institute about “Investing in the Future”. Time for a cuppa while I settle in for a read! 🙂
Going back to the theme about “social goods” best provided at state level, and given so many issues seem to come back to a lack of a (coherent?) energy policy and lack of generating capacity, I’ve often wondered if some sort of “state” energy company running something like 8 – 10 new nuclear reactors might be a way forward …
@TI – Yes, you’re right re: Gordon Brown and the Euro, although you’re obviously not giving the full picture there.
Perhaps you assume people know it. For those that don’t, the background is that Tony Blair, the other “arch remainer”, wanted to rush headlong into the Euro as part of his intended tilt at the European presidency. Mr Brown, who was building up his power base at the Treasury, realised that this would obviously impact on his own power base and tilt at the British premiership.
So, we retained the pound not due to any considered economic thinking by Mr Brown, but simply as a by-product of a developing tiff between the two big names in British politics at the time, where one essentially adopted the position of “I’ll do the exact opposite of what you do”.
Now, with hindsight, maybe it’s only the result that matters, but I can’t be the only one uneasy at the thought of something as fundamental as what currency we use being decided on the basis of a “lovers tiff” 🙂
As you’re also aware, the general drift in the EU treaties is towards “ever closer union”, removal of national vetos and, as regards the Euro, adoption by all. Yes, Denmark currently has an opt-out and the “convergence countries” are not quite there yet, but realistically, how long do you think they will remain outside the euro?
So, I think my quip about “Of course if you control your own currency (damn those Brexiteers, what did they ever do for us? ) …” still stands. As a specific result of Brexit, the UK *continues* to have its own currency and is able to set its own montary policy, interest rates, etc. Whether it actually choses to do so is of course another matter, but at least we’re not in a scenario where we are forced as a matter of law to adopt interest rates and economic policies which might suit, say, Germany, but not us.
A point glossed over by “rejoiners”, in that any re-entry to the EU will now result in adoption of the euro as a matter of course. Is that something which is in the UK’s best interest? An open question, but I’d hazard a guess that the sight of things like how Ireland was treated during the last euro crisis by it’s “European friends”, or the horror of the bank bail-ins / mess in Cyprus might just have factored into people’s thinking during the referendum …
It’s a big step from the convenience of not having to sort holiday cash in advance at the bureau de change to having to adopt an entirely new currency, in full, forever.
I digress.
@Dragon
Rejoining the EU and adopting the Euro would be a mistake, but joining the EEA+ and retaining monetary independence could achieve the best of both worlds.