Interesting, wonder if any of you are convinced by Daley's arguments for abolishing inheritance tax?
The evil of inheritance tax lies in punishing the thrifty
By Janet Daley
Telegraph Comment
04/09/2006
Which of these households is the most deserving: two spinster sisters who have spent their lives caring for their parents, a married couple without children, a married couple with children, a gay couple in a civil partnership with children, a gay couple in a civil partnership without children?
Depending on your personal scale of values, you might rank these cases variously, but I doubt that many of you would feel comfortable with the peremptory arbitrariness of the Government's order of merit. Under the present rules of inheritance tax, the households without children Рboth heterosexual and homosexual Рare the only ones that escape untouched. When either of the partners in such a m̩nage dies, the other inherits the entire estate, including the shared home, without having to pay a penny to the Treasury. The savings that the childless couple has accumulated (which are likely to be considerably more than those of the couple with children) will be untouched by the state. The childless are the outright winners in the Treasury's inheritance lottery.
Next comes the married couple (or the gay couple in a civil partnership) with children, who will enjoy the same exemption as the childless when one of them dies. But the children who have presumably been at the centre of their shared lives – for whom they have worked, saved and aspired together – will be hit, on the death of the second, by a 40 per cent tax on whatever is left to them. No matter that this money was taxed when it was earned, and again when it was invested.
Then there are the absolute losers in this game: the two spinster sisters who have devoted their lives selflessly to the care of elderly relatives and each other. The surviving one will get clobbered instantly and brutally on the death of her sibling. Because their relationship, however loving and stable it may be, is not a sexual partnership, they get no recognition at all from the state.
Just such a couple, Joyce and Sybil Burden, both in their eighties, are now challenging what they consider to be unlawful discrimination against them in the European Court of Human Rights. The sisters worked on their father's farm during the war and then went on to care for their parents and two aunts until they died. They remain in the family home, which cost £7,000 to build in the 1960s and which is now estimated to be worth £875,000. Needless to say, having to pay 40 per cent of the difference between this sum and the absurd inheritance tax threshold of £285,000 on the death of either of them would mean the surviving sister having to sell the home in which she has spent her self-sacrificing life. Can this be right? Does it strike you as just or appropriate?
read on...
1 comment:
I find inheritance tax to be a rather tricky one. I think there is a tendency to imagine that this only applies to 'the rich' as if that somehow automatically made it ok. I recently inherited a very small estate and I would certainly have been mightily pissed off had the treasury wanted any of it.
There seem to be two main points at issue: (I am leaving aside the possibility of reforms that might address specific anomalies like Daley's spinsters.)
1) Is it fair?
2) Does it work? (In the sense of bringing in revenue needed by the treasury.)
To answer the fairness question first, pro-ITers argue that it is in effect a tax on unearned income. One of the comments below the Daley piece says that all the money you earn is taxed when you receive it and then again when you pay it to someone else (e.g. your plumber) so the taxing it twice argument is somewhat disingenuous. In the US Bill Gates Sr. is a big supporter of IT on the grounds that it is designed to stop too much wealth being concentrated in the hands of individual families. (You can read his argument here.) However, it's vital to look at the difference in threshold between the US and the UK. The Gates argument applies to millionaires and (given that he supports a certain raising of the threshold) he would prefer it to apply to multi-millionaires. In the UK, I would suggest that the threshold is ludicrously small.
But returning my initial question of 'is it fair?', I think that despite a certain sympathy to the idea of taxing unearned income, on balance I think the answer is no. The plumber example above notwithstanding, I think it is unfair to penalise someone for having taken steps to provide for their family. (Or rather to penalise the family for having had a thrifty person in it.) It's not particularly fashionable to feel sorry for the aristocracy but if one does believe in private ownership and private property I'm not entirely convinced that justice is served by forcing a family to part with a stately home that has been in their family for hundreds of years. (We can easily see the injustice when we talk about a 3 bedroom semi in London.) I think at bottom the notion of IT is itself an attempt to correct another unfairness - to wit that of some people being born rich or coming into great riches through no particular effort. However, unless we really want a 100% inheritance tax these inequalities will always be with us. I think one of the comments on the Daley piece sees IT as a way of the state prefering to take control over a person's welfare rather than the individual. I have spent many years adhering to the view that the state could provide more fairness than the individual - 6 years in social housing in a high welfare dependent neighbourhood has lead me to the conclusion that while state sponsored 'fairness' may appear desirable it is sadly corrupt and impractical.
My second question was 'Does it work?' and I'll keep it shorter by saying 'I don't know.' I'm not sure how much the treasury depends on IT. I'd be interested to see what effect on the economy abolishing IT would have. Maybe less money would go off-shore, but I leave it to wiser economic minds than mine to go through the actual ramifications.
So, leaving aside the practicalities, I would say IT is unfair in principle and should be abolished or at the very least, the threshold should be raised by at least 300% (and possibly as much as 1000%).
And I leave you with this question - why is it that when I am about to leave subsidised social housing I have to pay the Treasury £8k (in the form of stamp duty) for the privilege. (Of course this is not unique to me - it applies to anyone buying a house.) I mean, we're not even talking about unearned income here - we're talking about finding and extra 3% of the purchase price in an already inflated market, before I've even had a chance to exploit the potential gains. All the major parties support home ownership so why this extra burden? I imagine that it's like any sales tax - the question is not one of fairness but of revenue raising. Still annoys me though.
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