Blogging from the Highlands of Scotland until I return to the Murcia region of Spain in the Autumn for a month or so
'From fanaticism to barbarism is only one step' - Diderot

Thursday, 26 August 2004

Inheritance Tax: should the 'rich' pay a lot, or should almost everyone pay a little, or no-one pay anything?

The answer seems like a no-brainer; Inheritance Tax is completely iniquitous and should be abolished.

However, not everyone sees it like this. Currently a deceased's estate is taxed at 40% on everything over GBP263,000 (about USD475,000). Because the threshhold has nowhere near kept pace with inflation, indeed it has been pegged from time to time, what might once have seemed a level which would have affected only the moderately to very rich now draws in a much larger sector of the populaton, principally because of the rise in property values.

A Labour-leaning 'think tank', the Institute for Public Policy Research (IPPR) wants to cut the starting rate (and perhaps the threshhold) for inheritance tax and to raise the upper rate to 50%, perhaps from a threshhold of as low as GBP475,000- to 'as much as' GBP763,000.

A few days ago I was nonplussed to read an article in The Daily Telegraph (of all places!) by its City Editor Neil Collins. In it he seemed to accept the validity of the principle of taxing people on their estates; I emphatically do not. He suggested a better way would be to have a much lower threshhold (say GBP50,000) above which everyone would pay a flat 10% as he suggested that no-one would seriously object to finding say GBP100k to pay the tax on a GBP1mn estate, probably largely in the form of property. He seems to imagine that those liable (or rather the beneficiaries) would not feel it 'worthwhile' to employ expensive tax accountants and lawyers to arrange their affairs legally so the liability would either be reduced or eliminated. Not in the universe I inhabit, Mr Collins. The best way of eliminating the need for expensive and complex tax arrangements would be to eliminate the tax altogether; it is not as if it brings in a huge amount, relatively speaking, to the Exchequer - about GBP2.5bn in 2003.

In today's Telegraph I was relieved to see that Quentin Letts has written a very necessary counter-blast to Mr Collins. Why should what for most people nowadays are assets acquired out of taxed income be subjected to a further levy upon death? The reason is quite obviously not principally a matter of raising money. Rather it is used as an instrument of social policy. But why should someone not be able to leave his/her assets to anyone they care to, without the state taking its pound of flesh? I can see no good reason, except a socialistic (a dirty word so far as this blog is concerned) desire to thwart individual effort, thrift and foresightedness and instead substitute a system where the state , as a 'benevolent' "Big Brother", provides for all our needs and really prefers not to allow individuals to be independent of its clutches. In other words, the 'socialist' ideal is for everyone to be levelled-down, rather than risk the 'horror' of allowing anyone (and their beneficiaries) to rise above the rest by dint of their own efforts.

In earlier years opposition to Inheritance Tax would have been difficult to 'sell' to the bulk of the population, as only a small percentage were ever likely to fall within its clutches, but that is changing rapidly. It is no longer necessary to be wealthy, merely moderately comfortable, and there are many millions of such people in the UK. Old-style socialist re-distributive policies such as that not-so-subtly being proposed by outfits such as the IPPR have no place in a country which wants to stimulate continuing growth in its economy and with it the living-standards of most of its residents. If the gap between rich and poor widens somewhat, so what? The important thing is that the poorest amongst us gradually become better off and private enterprise and initiative has been proven over many decades (and indeed centuries) to be the most efficient at delivering this happy outcome, however superficially attractive the obsession with re-distribution has sometimes appeared.

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