What is really Britain’s most hated tax?by
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?
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.
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.