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I like inheritance tax

Ed Bowsher

Friday 13 November 2009

16 comments
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45 per cent of lovemoney.com readers think that inheritance tax should be scrapped, according to our latest poll, and a further 50 per cent think the threshold should be raised. In fact, it's your second most hated tax behind council tax.

I disagree. Inheritance tax is my favourite tax. That's because I think it spurs economic growth, unlike all other taxes.

Think about it: if you won £10 million in the lottery, you'd probably work less hard, and you might even retire completely. Obviously, most of us aren't going to inherit that much cash, but I do believe that inherited wealth encourages people to work less hard.

It's not just me who thinks this. The world's most successful investor, Warren Buffett, is a strong supporter of estate duty, the US equivalent of inheritance tax. This quote from Buffett is bang on the money:

"I love it when I'm around the country club, and I hear people talking about the debilitating effects of a welfare society. At the same time, they leave their kids a lifetime and beyond of food stamps. Instead of having a welfare office, they have a trust officer. And instead of food stamps, they have stocks and bonds."

The strongest argument against inheritance tax is that it's relatively easy to avoid if you employ a fancy accountant. But that doesn't make the tax morally wrong. It just means that civil servants need to work harder at closing loopholes.

Just to be clear, my parents are reasonably affluent, so I stand to gain from the Tories' plan to raise the inheritance tax threshold to £1 million. But I still think the Conservatives are wrong.

If you're rich because you've worked hard and played by the rules, I congratulate you. But I see no reason why someone should lead a life of luxury just because their father or grandfather was successful. It's not fair and it doesn't make economic sense either.

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medicineworker said

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Totally agree with this. Look at Bill Gates - worth $50bn+, and he's leaving his kids 0.01% of his entire estate and the remainder going to charity.

Still, 0.01% is $5m, which is a pretty decent head-start.

13 November 2009

Surreybluenose said

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Inheritance tax is hated mostly because of the principle of having to pay a large levy on wealth that has already been handsomely taxed already. It simply goes against all principles of fairness. Most of the population do not leave enough to their descendents for them to 'live in luxury' so I don't buy the 'don't need to work hard' theory. Sadly I don't see inheritance tax being abolished although morally it should. I have come to the conclusion that it matters not what wealth one generates during a lifetime, no goverment will ever let you keep it. Wealth is an illusion; it is merely leased to you.

15 November 2009

Swarbs said

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Surreybluenose, that argument clearly ignores the fact that the majority of wealth is taxed twice. Once when earnt, and once when spent, be it on VAT, council tax, fuel duty, etc. If you save it all up, and leave it to someone in your will, you avoid all the taxes associated with you spending it, and also all the taxes associated with them earning it. So by that argument it is clearly fair to tax inheritance, in addition to Ed's excellent argument about the econoic and social impact. And of course, if you don't leave enough to your descendents for them to live in luxury, they don't pay inheritance tax - you can already inherit up to £650,000 tax free from both parents, and whilst that may not be enough to live in luxury, it'll certainly buy you a decent four bed house anywhere but London, and probably pay all the bills for around 50 years. Which for most people would probably equate to a life of luxury!

I don't think you or anyone else can make a good moral argument for inheritance tax being abolished, particularly given the additional burden it would place on earnings taxes and consumption taxes. In fact, the moral argument should surely be to ramp up inheritance tax and reduce income and consumption taxes, as both of these hit the poor much harder than the rich, and lower overall economic activity and prosperity.

15 November 2009

portlypaunch said

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I find the whole issue of obtaining wealth by someone else's demise thoroughly distasteful. Those who are "relying" on such a windfall or who argue it unfair that such an amount should be taxed are morally bankrupt.

To all but a tiny minority of the population £650,000 is a ridiculously large sum and would provide financial security for the rest of their lives. It is not unreasonable for any excess to be taxed. Personally I would be happy to see the threshold significantly reduced.

The only fairness issue here it between those who work for their wealth and those who are handed it on plate by the sad demise of their loved ones.

15 November 2009

philippasutton said

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I have two daughters-in-law, both of whom would really love to have a family house in the country, with a family garden and a family kitchen - and a family of several children. I know they would both work hard at raising the family and looking after the house and the garden - and my sons. I fantasise about winning the lottery and making this possible for both of them.

They are not likely to get it any other way. They are all four intelligent and talented people, but not in the right fields to make big money, and one child and a house too small for grandparents to stay in looks like their best option, even with an inheritance from a previous generation to mine. That should make it possible to get together a deposit of the sort of size you need these days.

Would I leave them billions so they never had to lift a finger - absolutely not. Would I like to make it possible for them to live in comfort with what one person could earn, in a nice house by the time they were 40? You bet.

16 November 2009

christopher F said

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Everyone would want the best for their families, and i dont think no one would want to see their sons and daughters suffer and and will have a difficulty for their get a personal loan in time that they will not succeed with their careers. but it sounds fair enough knowing that inheritance tax would be a great help to those who need it most. It is not either bad. Its just that families will not benefit more with regard to their shares which they will obtain from their benefactors. The good thing is, you must come to realize that money or success in life should come from your own thoughts and will and not merely depending much to someone or something.

16 November 2009

billyboy121 said

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There seem to be three arguments here pro IHT

1) that's it's not fair that some people inherit wealth and others don't

2) that if IHT were abolished, it would put pressure on other taxes to compensate

3) that all money is taxed twice so IHT is simply that second tax

I must admit that I come from a pro IHT stance, because

(1) to me inheritance is a key part of passing on the fruits of work to my children rather than handing a chunk of it over to a faceless state who will no doubt fritter it away

(2) I feel that the government already taxes me quite heavily as it is (UK has comparatively heavy taxes to a number of other countries) and I don't always think that a lot of value has been obtained from those taxes when I look at what the revenue is spent on

If IHT were earmarked for some socially useful purpose (for clarity, not MPs second homes) then I think I would be much more inclined to support it, so perhaps IHT could be channeled into education and health specifically rather than via the tortuous political processes. Unrealistic I know, but I do feel a resentment against paying all these taxes and then still finding that we are up a creek when things go slightly awry and that the government appears to have made no provision for the bad times even during a decade of unprecedented boom.

Alternatively, funds that are inherited could be confiscated by the govertment and invested into special gilts - the state gets the benefit of the money, the inheritor gets a risk free, low rate of return: it won't buy them a champagne lifestyle but it will ensure that they are never destitute and therefore a burden on the public purse.

16 November 2009

MrsTrellisOfNorthWales said

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There is little or no incentive to save money during your lifetime if you know that the (totally undeserving) taxman will be helping himself to a large chunk of it after you die. Inheritance Tax is a punishment for being prudent.

Does the writer of this article have children, I wonder? If so, would he like to think of them being homeless after he dies? It could happen. Whilst a surviving spouse can inherit without being liable for Inheritance Tax, children cannot. And children of any age (from a babe in arms to a seventy-something spinster who has devoted her life to looking after her ageing parents) who are still living in the family home when their parents die could then find themselves forced to sell the house to pay the tax bill.

Fair? I think not...

16 November 2009

MrsTrellisOfNorthWales said

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billyboy 121 says:

I must admit that I come from a pro IHT stance, because

(1) to me inheritance is a key part of passing on the fruits of work to my children rather than handing a chunk of it over to a faceless state who will no doubt fritter it away

Er - have I missed something here? I've always understood "pro" to mean "in favour of". These arguments sound to me much more like arguments AGAINST Inheritance Tax...

16 November 2009

MrsTrellisOfNorthWales said

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And if Inheritance Tax really is fair, then why doesn't the Queen have to pay it?

16 November 2009

redndead said

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With adequate financial planning, most people can avoid death duties , and I cant see a good case for allowing the richest to escape any taxes due.

As for the caring child inheriting the house, I think that parents are blackmailing their carers with the old "when Im gone this is yours" argument. If they want to guarantee that childs g=future, then transfer ownership of the house, or part of it, early on to brimng down the value.

But of course, that would remove the sword of damocles from the carers head.

How can anybody object to a tax that is paid after you die? You cant take it with you, and why should greedy kids get their mitts on it.

16 November 2009

LAWR3NC3 said

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The argument that we all suffer double taxation during our lives so why not impose an additional tax at death on those foolish/generous enough to have squirrelled away a substantial proportion of their wealth for others, sounds plausible but is weak on facts. The problem is that the main life time taxes are income tax & VAT. There is also the small matter of CGT. All these taxes reduce the wealth of those who are saving to pass on to their decendants in exactly the same way as they diminish the wealth of those who do not/cannot save during their lifetime. Just to emphasise the point, income from estates whether in thye hands of the original settlor or his/her beneficiaries have always been taxed at the highest marginal rate during their life, as it will after their death. Is it not the case that money passed on at death has already been through the tax seive any number of times?

The general view is that all tax is verminous, but at a certain level is necessary. Morality is irrelevant as, in a democracy, our tax masters our accountable & removable. IHT is an avoidable tax; hence the very small amount of tax it collects. This also keeps lawyers & accountants in their jobs & for that reason alone is unlikely to change any time soon. The cost of their advice, tho' paid in advance, generally comes out of the inheritance. So if you do not like the tax pay to get it mitigated.

Nobody has written about the effect on society of eroding the ability to pass on your wealth. It is often helpful to take an idea to the Nth degree to estimate the effect of minor adjustments - here that would envolve ensuring everyone died intestate. (This happens I would imagine in communes, where the members tend to be rather more altruistic than is generally the case.) I would imagine the wealthy would go on a spending spree once into retirement, including outright gifts to their relations. It would need careful planning but, inevitably it would put much greater pressure on them to divest ever earlier to their decendants. This is already the most unfortunate aspect of inherited wealth & that, I believe, is where the law should be adjusted! There are a number of possible solutions - generally using the field of trusts.

HstG.

16 November 2009

Ed Bowsher said

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Interesting discussion. Thanks everyone. I think most of the points have been answered by other posters, so I'm only going to reply to a point from MrsTrellis.

There is little or no incentive to save money during your lifetime if you know that the (totally undeserving) taxman will be helping himself to a large chunk of it after you die.

I disagree. As you suspected, I don't have children, but I still have a strong incentive to save. The incentive is worry about my retirement. I hope to retire at 65, I might live to 90 - or even longer - and I'm concerned that government provision for pensioners will be severely cut before then. So I'm aggressively saving these days. Even though I'll probably never have kids.

Does the writer of this article have children, I wonder? If so, would he like to think of them being homeless after he dies? It could happen.

As I say, I don't have kids. So maybe it's possible I would see things differently if I was a dad. But the counter-argument to your point is that if my children were fit and healthy, they should be able to make their own way in life.

Reading my post again, I could have been clearer in expressing myself. I'm not suggesting that inheritance tax should be charged at 100%. So parents can still leave some money to their children. But I see no reason why it should be abolished, nor should the threshold be raised to £1m as the Tories propose.

In fact, I'd happily cut the threshold to £250,000 (£500,000 for a couple) and charge it at 50%. It would then be aligned with the new top rate of income tax that is coming in.

16 November 2009

RogHyde said

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A couple of relevant points which I don't think have been mentioned:

Firstly, if the nation now owes billions of pounds (or is it trillions?) because of the actions of the democratically elected government, then surely if I die before that is paid of, shouldn't I pay my share of it in the form of inheritane tax.

Secondly, as we are now living longer, by the time we die our "children" will probably be in their sixties or approaching retirement and if they haven't sorted their finances out by then they don't deserve help.

Roger

16 November 2009

Savvy chic said

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The threshold for Inheritance Tax is far too low and also, why is the Tax itself so high?

I totally disagree with this.

In my case, what I leave will have had Tax paid on it over and over again in my lifetime. Why should my sons then be taxed on it?

17 November 2009

Ed Bowsher said

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In my case, what I leave will have had Tax paid on it over and over again in my lifetime. Why should my sons then be taxed on it?

Because tax revenue has to come from somewhere, and I'd rather tax inheritances than increase income tax where peoples' hard work is being taxed directly. I'd like to keep income tax as low as possible so that hard-working, successful people are given as big an incentive as possible to create wealth for the economy.

Regards,

18 November 2009