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What is really Britain’s most hated tax?

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Recent news coverage suggested that inheritance tax is Britain’s most hated tax. But why does it get such a bad press when almost nobody pays it and the tax brings in much-needed revenues to the Exchequer?

27th Sep 2023
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From his early days as Chancellor of the Exchequer onwards, Rishi Sunak has enjoyed testing out potential changes to the tax system by leaking details to friendly media outlets and waiting for reactions.

When apparently clever schemes are ridiculed, he backs down with complete deniability – “that was never under consideration by the government”.

Forgetting that Jeremy Hunt is supposed to be Chancellor, this week’s “rumour” emanating from Number 10 suggests that Mr Sunak is considering reducing the rate of inheritance tax (IHT) by a few percentage points, presumably as a first step towards full abolition.

The story was published in some outlets accompanied by considered views that inheritance tax is the most hated of all of our taxes. Whether this additional information came from insiders at Number 10 or detailed surveys carried out by hard-working journos is unclear.

Eccentric conclusion

You wonder how anyone could conceivably come to this eccentric conclusion, given that the same news reports estimate that the hated tax only applies to around 4% of UK estates and the knowledge that avoidance measures taken by the richest frequently reduce the liability significantly.

Coincidentally, as this article was being finalised, the Institute for Fiscal Studies (IFS) published an analysis of the impact of inheritance tax headlined by the statement that by 2032 scrapping it would cost the Exchequer £15bn every year. Given that it is not unreasonable to assume that many are not far above the generous thresholds (all things are relative), the percentage materially harmed is going to be even smaller. Indeed, the IFS report suggested that the bulk of benefits were shared by a mere 1% of estates.

In any event, the only way to accurately discover whether those directly affected are up in arms would be to carry out a series of séances, given that the tax falls on those that have regrettably shifted off this mortal coil.

One could argue that the beneficiaries of bequests are suffering, although most are grateful to receive money or chattels at all and very few would notice that their windfall had been reduced by the tax.

Britain’s most hated tax

So why is IHT so widely “hated”? The only reasonable conclusion is that a combination of some or all of the government, the media and perhaps social media are collectively responsible for spreading disinformation and promoting this fallacious assumption for nefarious reasons.

In the circumstances, you might have thought that HMRC and/or HM Government would go out of their way to correct the misunderstanding, especially given the latter’s close connections with mass media.

If IHT does not deserve to be classed as Britain’s most hated tax, then the next question is which of its cousins should take that much-desired crown?

An instant response would probably be either income tax or national insurance contributions (NIC). Each of these affects a much greater proportion of the population and picks the pockets of most victims on a monthly basis, whereas IHT is a once-in-a-lifetime (if that) experience.

There are other candidates, some of them not entirely obvious at first glance. If you happen to be a smoker or drinker, then duties are swingeing and might well be the subject of far more bar-room criticism than poor old IHT. Given the energy crisis of recent times, petroleum revenue tax could also be in the frame, while council tax is pretty severe, particularly on those towards the bottom of the income pile.

Challenger to the crown

However, if truth be told, there should only really be one candidate for the title of Britain’s most hated tax: that is VAT.

While IHT is only paid on around 4% of estates and there is a threshold for both income tax and NIC, meaning that the poorest in society pay little or none, VAT is ubiquitous.

It is hard to believe that there is any person living in the UK who does not consume goods or services that have been subject to a 20% VAT charge, though some babies might just get away with 5%.

In addition, even foreign tourists find themselves stumping up VAT as they pick up bargains in Harrods, visit theatres or pay their hotel bills.

Maybe it is time for somebody to carry out a detailed survey or possibly even a poll to determine the true answer to this question. Before that, perhaps an education programme to support a tax that will bring in £15bn a year by 2032 without affecting 96% of the population should be part of the government’s pre-election agenda.

Replies (18)

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By Justin Bryant
27th Sep 2023 15:07

"...and the tax brings in much-needed revenues to the Exchequer?"

Is 0.7% of the total HMG revenue pie (the same as IPT) really all that "much-needed"? https://ifs.org.uk/taxlab/taxlab-key-questions/where-does-government-get...

Foreign money would probably pour into the UK and/or HNWIs would stay put in the UK etc. to more than make up for that 0.7% shortfall.

The £325k threshold is now ridiculously low (compared to say the US IHT threshold). That's basically the price of an average one-bed flat in Greater London.

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Replying to Justin Bryant:
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By More unearned luck
27th Sep 2023 15:42

See here for a wider and fairer international comparison:

https://www.taxpolicy.org.uk/2023/09/25/iht_compare/

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Replying to More unearned luck:
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By Justin Bryant
27th Sep 2023 16:39

Eh? DN is only slightly less biased re pro-rich taxes for their own sake (i.e. ignoring the positives in minimising/abolishing them) than RM. A link to his website is unlikely to yield reliable/impartial analysis (in the same way The Guardian's tax analysis should not be relied on as we all know it's biased: https://www.theguardian.com/commentisfree/2023/sep/25/the-inheritance-ta...)

Just look at his website re VAT for foreigners on luxury handbags etc. Although admittedly even HMG is against abolishing that (but that's probably just stupidity): https://www.tax.org.uk/government-and-labour-reject-reinstating-tax-free...

I think he also talked about the benefits of abolishing non-dom status and totally overlooked how easy it is for the mobile rich simply to be non-UK resident i.e. his analysis is usually flawed and not credible.

I'm now just waiting for his highly biased VAT analysis re private education (if I've not missed that already).

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Replying to Justin Bryant:
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By Justin Bryant
29th Sep 2023 09:17

You don't see the likes of DN or RM discuss this being a problem do you?

https://www.bbc.co.uk/news/uk-politics-66945729

I wonder why?

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Replying to Justin Bryant:
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By Justin Bryant
29th Sep 2023 12:09

Also, check this out:

"in addition, the top 1% of Income Tax payers were liable for 29.1% of total Income Tax in 2020 to 2021. This is projected to decrease to a 28.5% share of total Income Tax by 2023 to 2024"

https://www.gov.uk/government/statistics/income-tax-liabilities-statisti...

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Replying to Justin Bryant:
Stepurhan
By stepurhan
29th Sep 2023 12:37

Did DN run over a favourite pet? Your obsession with having a go at him at every opportunity, even on articles which make no mention of his name, is really not healthy.

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Replying to Justin Bryant:
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By Justin Bryant
02nd Nov 2023 15:18
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Mark Lee headshot 2023
By Mark Lee
27th Sep 2023 16:02

The original source of the phrase 'most hated tax' seems to be a survey commissioned in 2021 for Hargreaves Lansdown which found that 24% of the 2000 respondents hated IHT more than any other tax.

I'm no statistician but claiming that makes IHT the most 'hated' tax is only one way of interpreting the figures - and certainly grabs headlines.

The responses to the survey also tell us that ONLY a quarter of people hate IHT and that the number of people who hate other taxes is, taken together, much higher.

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Ivor Windybottom
By Ivor Windybottom
28th Sep 2023 09:52

This YouGov research suggests IHT is considered to be the second most unfair tax, after the TV licence:
https://docs.cdn.yougov.com/kjm6mv718b/YouGov%20-%20Tax%20fairness%20Oct...

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By Hometing
28th Sep 2023 12:54

I vote income tax but mostly because it's the only tax I pay

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Replying to Hometing:
By Duggimon
29th Sep 2023 10:32

How do you avoid VAT? You must be cold.

Thanks (2)
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By Marlinman
29th Sep 2023 10:08

I'm surprised IHT is top of the list as it doesn't affect everyone and there are ways to avoid it. Council tax is my most hated tax as its lifetime burden on everyone owning their own home and just keeps on increasing irrespective of ability to pay. If you estimate your total council tax over your lifetime you will be shocked.

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By mellor3
29th Sep 2023 10:16

Its the most hated tax because its a tax on wealth that has already been taxed in the person lifetime??? How is this not mentioned in the article? Very poor article.

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Replying to mellor3:
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By Arcadia
29th Sep 2023 10:57

How have unrealised property gains/investment portfolios/inherited wealth been taxed in someone's lifetime? If IHT only yields 0.7% of tax revenues it is time it is beefed up substantially. It is a victim-free tax - the departed don't care, and the beneficiaries can't miss what they never had. If the UK is at the lower end of the tax/GDP ratio, as per the article Justin quoted, this would be a good area to start making up the difference so that we can afford the basics of a decent society again - justice/public services/health/water/trains/roads - feel free to add your favourite to this list.

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Replying to Arcadia:
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By mellor3
29th Sep 2023 11:49

You are just cherry picking a certain case. Many people with 2nd homes or have saved all there life or made money via there business efforts and employing people etc, we need wealth creators, and then taxed again upon death? Its that simple.

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Replying to Arcadia:
paddle steamer
By DJKL
04th Oct 2023 13:50

Yes, CGT on death re all pregnant gains (inc people's houses) and scrap IHT. Taxes where those voting for them suffer from them is imho fair. Few suffer IHT so most possibly do not care what rate charged (Though I actually expect I will escape it as I live modestly)

Also HL customers are not a representative sample of UK population, the fact people are HL customers indicates they probaly have more brass than the average Joe.

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By emanresu
29th Sep 2023 15:18

Hey, AW, why has the original Reply 15 suddenly vanished?

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paddle steamer
By DJKL
04th Oct 2023 13:44

My most hated is the Scottish threshold differential between its Higher rate tax band at £43,663 and the UK National Insurance threshold of £50,268, that horrible spot where I get stuck with 42% IT and 12% NI, marginal 54%.

Now I know above £100k is theoretically higher, but at that level you have at least earned a fair chunk before the extra rate bites(withdrawal of PA).

Sooner I stop earning and start drawing pensions the better.

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