Should we blow the bloody doors off inheritance tax?
With both political parties taking excessive interest in inheritance tax, Philip Fisher wonders whether the politicians are taking things far enough.
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Replace it with capital gains tax on death seems the obvious solution. You have one set of reliefs that are consistently applied during lifetime and death
Your pink slip is showing, as usual, Philip. There was no economic meltdown last autumn, with the minor exception of LDIs. The meltdown was almost entirely political.
Lots of good points here, Philip. To my mind IHT is one of the least controversial taxes as it is never paid by anyone alive - and even in terms of what is received by beneficiaries, as you say, it only applies to the small number of estates that fall outside all the exemptions.
But on the points about a possible reduction in IHT from 40% to 36% it's worth reminding readers that it is ALREADY possible for any testator to get the IHT rate down to 36% (if the estate would otherwise be subject to IHT) just by leaving 10% of the estate to charity.
However, who is helped by this? It only benefits those who are are (non-charitable) beneficiaries of estates large enough to attract IHT (generally relatives of the wealthy) where the testator is willing to leave a modest share to charity but not too much. (If most or all of the estate is left to charity the IHT is £nil in any case, so there is no further benefit.)
It doesn't help charities very much because it does nothing to incentivise the really large residual legacies that account for most of the estate. Likewise it offers no benefit when charitable bequests are included in the vast majority of estates that fall below the IHT threshold.
So the beneficiaries of this concession are normally relatives of deceased wealthy persons who are happy to give a bit to charity but not that much.
Not true that IHT is only paid by the deceased - the IHT tax take from relevant property trusts has increased exponentially in leaps and bounds since Gordon Brown's coach & horses driven through a millennia of trust taxation! It is now quite a sizeable chunk of the overall IHT tax take.
Why have accountants slipped into emotion in describing a tax proposal as 'nonsensical'?
There are examples of tax rate deduction, where the tax take increased in total. Tinkering with the 45% rate may have had a positive impact. Similarly a Corporation Tax rate of 25% sounds counterintuitively to be regressive. Finally the 40% threshold is impacting me personally and my actions and my proposals to clients.
We're regulated by pathetic bits of paper, whilst today opinions are bandied about as accounting theory.
The people who pay IHT are not the dead but the living. Beneficiaries may be receiving large sums but they see even larger sums being paid over to HMRC. Most people in the UK rarely write cheques to HMRC so the shock of having to pay, say, £100,000 is considerable.
Whilst many people will never pay IHT, most of them aspire to acquire wealth and thus worry that their children might have to pay it.
The nil rate band has not been increased since 2009 so an uprating of that in line with inflation is long over due.
I would support abolishing IHT and making death a CGT event with the possibility of deferral until the asset is sold. This is what happens in Australia.
The trouble with CGT is establishing a Base Cost.
It's difficult enough to get accurate figures from the living (and details of dates, costs of acquisiton, enhancements etc) so wouldn't fancy trying to get this stuff from the recently deceased!