Inheritance tax is a tricky subject that stirs up a range of emotions. In part this is because it is paid by families who have just lost a loved one.
It also whips up feelings that get to the heart of what wealth and work mean to people. Successive governments have told families that they must be self-reliant and look to their own resources, not the state’s. For many families, this means that wealth and inheritance are synonymous with financial security. Security against having no pension, or the costs of social care. It’s no surprise that inheritance tax elicits strong feelings. But despite scare stories in the newspapers suggesting that the tax is deeply disliked, the reality is much more mixed. That’s the key finding from a fascinating piece of research by our friends at the think tank Demos. They surveyed 2,000 Brits and found that up to three quarters backed some form of inheritance tax. Just 21% of people said all inheritances should be tax free. We support inheritance tax According to the research, there are high levels of support for charging inheritance tax on the super-rich, second homes and financial assets. This is good news, especially given that elements of the media and right wing politicians have declared they want to get rid of the tax ahead of the next general election. We support maintaining inheritance tax for many reasons (though we do accept that it needs reform). Below are 5 facts about inheritance tax that inform our view: 1. Most families don’t have to pay it Just 3.8% of estates pay any inheritance tax. A generous system of allowances means that no inheritance tax is paid below a certain level of wealth. For example, a married couple can hand over a million pound family home to their children and grandchildren tax free. 2. The super-rich already benefit from inheritance tax loopholes, scrapping the tax would make them richer. Tax Justice UK research exposed how a small number of multi-millionaire families benefit from tax loopholes to pay lower rates of inheritance tax than families who are less wealthy. Scrapping the tax entirely would make those multimillionaire families even better off. We think this is wrong. At a time when services like the NHS are on their knees we should be scrapping giveaways to the wealthy, not giving more money away to them. 3. Scrapping inheritance tax would leave a £7 billion gap in our public services. When you ask ordinary people if they support tax cuts even if it means cuts to public services, the answer is a clear: “No”. Inheritance tax is one of the few taxes on wealth we have that helps pay for things like social care, the NHS and education. When politicians call for IHT to be scrapped, we should be asking them which care homes they’re prepared to close, how many nurses they are prepared to sack and how many schools they are willing to close to fill the £7 billion hole it would create. 4. Wealth inequality is a ticking time bomb for inequality, scrapping inheritance tax will make it worse Research by the Institute for Fiscal Studies has highlighted the effect of growing inheritances in deepening the UK’s stubbornly entrenched wealth inequality. The Resolution Foundation argues that we will reach ‘peak inheritance’ by 2046, when the value of inheritances is expected to be more than two-fold that today. This will further entrench inequality within younger generations, between those that have parents who own homes and those that do not. Birthright should not be the primary arbiter of wealth. 5. We need to fix inheritance tax, not scrap it Inheritance tax needs fixing. One way of reforming it would be to change the focus so that it is paid by the person receiving a transfer of wealth. The Institute of Public Policy Research think tank has suggested that everyone should be able to receive £125,000 tax free over their lifetime. Only once this level is reached would someone start to pay tax on transfers. A lifetime receipts tax like this would be much fairer than the status quo. We are clear that inheritance tax should be kept in some form. However, as Demos’ research hints, that will require reasoned, honest dialogue with the public about how the tax works and what it pays for. That starts with leadership and a willingness by politicians to stand up for the positive role that tax plays. Comments are closed.
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