Whilst on my weekly perusal of Lib Dem Voice I spotted an interesting article by my lovely colleague Stuart Bonar. He was discussing inheritance tax; an issue that I hope will not affect me for a while, but nonetheless, an important one to many of us. I was initially inclined to agree with Stuart’s view that individuals should be taxed on these ‘wind-falls’ but then I got thinking…
Inheritance tax used to be a tax on the rich, something not relevant to most of us. But it’s now a tax paid by many, as house and asset prices have risen to extraordinary levels; many being valued at over £325 000, which is the threshold for this tax. However, I do wonder whether many of the rich, the original subjects of this tax, pay it, as they can afford expensive and skilled accountants or leave the country to escape this payment, something that I and many others cannot do.
Personally, I feel a strong desire to provide for my children when I leave this world. I want to work to ensure that they have the best education, learn new hobbies, see some of our beautiful planet, and live in a nice house. I also want to ensure that they can do this when I’m no longer here to look after them and the only means of doing this is to work hard and save so that my children can have the financial security they, and so many others, deserve.
I know I am not the only woman or man, working hard and attempting to progress up the corporate ladder, in order to provide for children. Despite this, not everyone sees providing for their children financially, as a suitable means of caring for them from ‘beyond the grave’ but surely it is our right as individuals in this wonderful free and democratic society to choose to do this, if we wish. Sadly, I feel that inheritance tax, infringes upon this right. I feel less enthusiastic about giving my children these sums of money if I know that the state is going to take 40% of these assets in order to redistribute my wealth.
I’ve made this conscious decision to work towards providing for my children and I do not want the government to have a right to redistribute the wealth that I have worked so hard to achieve, particularly amongst those that have, often, chosen not to do so. It really surprises me that anyone would vote to allow the state to take 40% of their assets upon their death.
I’m not a selfish person. I choose to work hard, I choose to volunteer at the local community group and I choose to donate a proportion of my monthly wage to a charity. I want to help those less fortunate than myself but not by penalising those that have worked hard to provide for their families. Perhaps, many people fail to realise that inheritance tax, for many women, and probably men, is essentially an emotional as much as a functional issue. The desire to provide for one’s offspring is a natural human instinct. I’ve happily paid tax on this money when I earned it, on the interest this money has accrued whilst in the bank, paid the council tax on my home and so on. Therefore, I just don’t feel that I should have to pay again.
I want to be safe in the knowledge that if my partner and I both die, our children’s education will be paid for and they will be financially secure. After all, they will not have the support of two loving parents to help them through life. There will be no parents to give them gifts at Christmas, bring along flowers, or purchase the odd treat. The least we can do is ensure that they have a home and the funds to live a comfortable lifestyle. Mourning the loss of their parent(s) and trying to live without that network of family support should be their main problems, not worrying about whether they have to sell the family home to pay the bill demanded by the state so that wealth can be distributed amongst society.
Personally, now that I know that the state will take 40% of my assets when I die, I shall find other ways of providing for my children during my lifetime. I will give them money, set them up in business if they desire, help buy a home for them so that they aren’t burdened by the huge mortgages that I currently pay, and hire tutors to ensure that they pass their exams and can go to university, so that, in turn, they can enjoy higher incomes throughout their lives. I will ease them into my professional networks so that they can start their working-lives with contacts and friends that can help them; whether they choose to work at the local corner-shop or begin a career in PR or finance.
So essentially, inheritance tax is just driving us away from the things that we know will be taxed when we die and therefore, to me, it seems that in addition to being an unjust system, it is also counter-produce. It’s time to give inheritance tax the chop.
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105 Comments
Knowing how land values actually work, if you got rid of IHT, you should only do so if you also implement Land Tax.
Inheritance tax affects only about 6% of estates in the country – granted not necessarily the 6% of richest estates (as you say, they will find a way to avoid it) – but it’s not actually a big thing. Conceptually I think people object to it (a) because they worry unnecessarily that it will catch them, when more often than not it won’t and (b) because it seems wrong to tax something that’s already been taxed once.
I’d happily see us move from taxing estates, to taxing individual gifts over a certain size as income, to encourage the spreading of estates amongst large(r) groups of people and organisations.
So, basically, you agree that you will be able to give your children advantages when you are alive, and want to continue to do so after death?
While I can sympathise (of course you want to do this, who doesn’t want to help their children any way they can), by the time you die hopefully your children will be adults themselves, and capable of looking after themselves.
£325,000 in assets still puts people in the top few percentage of the population, and redistributing their advantages so that the disadvantaged can also have a chance is exactly what the tax system is good for. Doing so at the point of death, when the people who it belongs to are no longer around to suffer from its removal, is precisely the best point to do so.
1. The state doesn’t take 40% of your assets. It takes 40% of your assets above £325,000. The vast majority of people don’t leave this much to their children. You may have to sell your family home anyway to pay for your care when you are elderly.
2. If there wasn’t income tax, then to maintain the same level of income for public services other taxes would need to be raised. So that means even more of your hard-earned money taken from you in the form of income tax, VAT, council tax etc. These taxes are all more unfair than IHT because they’re taxes on positive things – work, consumption, being alive.
3. The implication of what you are saying is that the children of the rich should enjoy a pleasant life simply because of who their parents are, while the children of the poor have to work to get those things (and have their hard-earned money taken from them while they’re at it.) That’s not my idea a free society.
4. Why are you ‘happy’ to see your hard work taxed via income tax, but not happy to see it taxed via IHT?
5. Most of the people who leave over £325,000 do so in the form of property. But it isn’t your hard work that has built up the value in your family home. It’s the hard work of your community that has made the land your house is built upon valuable. Society’s hard work then gets passed straight to your children untaxed. That is unfair.
6. What Jock said. The best way to tax wealth is land value tax, for the reason I gave above. But while this isn’t in existence, IHT is essential.
I don’t really see anything about inheritance tax in here. You argument seems to be “tax is bad because it means I have less money” and the point about children is really peripheral: doesn’t income tax also reduce the amount you receive in the first place to ultimately pass on to them, and doesn’t VAT reduce what you/they can get with that money? All things considered, I would really like to know why the author thinks a tax paid on property one has done nothing to earn apart from the happy accident of birth and which is only paid by the middle classes and above anyway is more odious than, say, VAT?
Agree wholeheartedly with Duncan and Jock. Wealth taxes are too complex and thus not transparent (and as you point out in your article, are easily avoided by those rich enough), so the answer is a comprehensive, fiscally neutral, flat-rate tax on land values, to replace all property taxes, poll taxes and wealth taxes, including IHT. Until that happens though, IHT is a crucial means of reclaiming some of the unearned wealth that accrues in land values, and overall that is what serves children best.
LAND VALUE TAX
Ahem.
Also, the transmission of inequality through the generations is unacceptable unless we also accept that a proportion of what you’re leaving for your kids is due to communal factors – yes you choose to work hard, but can only reap monetary rewards way above those the rest of us have to live with (as has been said we’re talking a tiny proportion of the population) because of the excellent education you received and so on. So taxes on inheritances are a way for society to share in your success such that it isn’t just the children of the wealthy that can benefit in the next generation.
This should be fun 🙂
If we move taxation off things like trade and work and on to unearned income and wealth then you can still build a nest egg for your children, but at the same time will offer greater incentives for people to produce things and use land & assets more efficient, thereby making society wealthier and hopefully therefore ensuring greater material wellbeing for our children, grandchildren, their children and so on. Inheritance tax has its faults, in particular that it can be easily avoided, and taxes like Land Valuation Taxation make greater sense. However, if the Party were to become the anti-inheritance tax party then I know it will have lost its soul.
“But it’s now a tax paid by many, as house and asset prices have risen to extraordinary levels; many being valued at over £325 000, which is the threshold for this tax.”
Don’t forget that for couples (married or registered civil partners) any unused nil rate band from the estate of the first partner to die can be transferred to the second partner’s estate. So if the first partner leaves everything to the second and doesn’t use their nil rate band then twice the nil rate band – £650,000 at present would be available to set against the estate of the 2nd partner to die.
Since the average house price is at present is around £167,000. I cannot see that many estates falling into an inheritance tax problem when there is a free £650,000 to play with
I want to provide for my children into adulthood but from then I want them to be judged by their own success, not mine.
I’ve recently been watching Milton Friedman videos. His argument is that establishing a family fortune is an incredibly strong incentive for people and that by taxing inheritance you’re encouraging people to spend their wealth when they are alive. The harm in this is that instead of making long term investments in businesses that allow for economic expansion that benefits the working poor, they’re encouraged to fritter away their wealth on extravagance, with the implication that this will only lead to short term economic gain.
Death is a very good time to tax someone.
Some of the comments are nearly, very nearly, convincing. The main point (for me, anyway), which I think the article fails to place the correct emphasis on, is that the money/estate/whatever has already had the tax taken against it as income AND sales tax. This is essentially punishing those who don’t blow their dosh on pop and crisps. Hideous message that puts a picture of Brown in my mind… shudder! However, once I have an estate worth £350k, I think I’ll use some of that money to good effect and ensure it is shuffled around so that it stays beyond HMG’s reach. Hence, it improves the lot of accountants, too (not that I’ve got anything against accountants, just seems perverse).
‘…flat-rate tax on land values, to replace all property taxes, poll taxes and wealth taxes, including IHT. Until that happens though, IHT is a crucial means of reclaiming some of the unearned wealth that accrues in land values, and overall that is what serves children best.’
Couldn’t agree more!
What we actually need is to continue the Liberal policy of reducing income tax paid by the poor and low income earners; maintain the 50% tax for the well off; introduce a land value tax (to replace IHT) and a local income tax (to replace the regressive Council Tax) and simultaneously reduce that other regressive tax: VAT (which as we all know hits the poorest hardest) whilst maintaining a fair income tax system.
We then go a long way to creating the long held Liberal ideal of beginning to create a society of equal opportunity. Mark you re-introducing Education Maintenance Allowance for 6th Form students and reducing this £9000 ceiling on University fees would be a good idea too.
The vast majority of taxes are bad.
In principle inheritance, being a transaction with money to pay attached, is no worse than, say, taxes on savings, jobs or domestic fuel. The trouble is that the tax rate, at 40 per cent, is designed to be punitive rather than just to raise money to finance public services. Because the rate is deliberately punitive, all sorts of long-term activities, such as family businesses and woodlands, have to be exempted to avoid tremendous economic and social damage. As a result, the tax raises relatively little.
If the parties could agree on a long-term tax of just 10 per cent, without most of the exemptions, revenue would be higher. The damage and distortion would be avoided, rather than the tax. And inheritors should not have much difficulty making good the tax over a generation.
Indeed, for those who are able to take the relevant measures, normally those with substantial assets, few these days pay much in the way of Inheritance Tax. Much the same sort of people also escape the tull weight of taxes that others cannot, often paying only derisory amounts. The answer is to end Inheritance Tax and impose a 1% Property Tax.
the current threshold at which inheritence tax is levied is 325,000 which would buy you four orfive houses in parts of the north of england
if you have that much in assets you are very fortunate indeed
my mother died suddenly and left everything to me, on the assumption that when she went, my (much older dad) would by then have croaked it. however, he was very much alive and so, mainly because of the house price boom that was completely outside of our control, i faced the very real possibility that inheritance tax demands of about £300,000 would have landed on my doorstep upon my mother’s untimely death. what a lovely country, that woudl do that to its citizens: “Hey, you there with the dead mum! Give me three hundred grand”. The idea that a family who has tragically and prematurely lost a mother should have to then sell their family home in order to give the taxman several hundred thousand pounds is sickening. It’s easy to say ‘tax the rich’, but frankly the bank of mum and dad is well-endowed, in the main, from rising house prices, and they aren’t actually rich people, as they still live in the sam eofl house they always did. the only way many will get on the housing ladder is with parental help , and if that is taken away at the death, because of the death, of your parents, you’re buggering up young people’s chances of joining their peers, as well as kicking them when they’re down. IHT is a great idea in theory, but an utterly sickening one in practice.
Dear Duncan Stott
Sorry old son, you are just plain wrong, the state take far MORE than 40% on the balance of £325k in fact it is taxed THREE times so it actually comes in nearer 70% tax
I’ve happily paid tax on this money when I earned it, … Therefore, I just don’t feel that I should have to pay again.
You won’t have to pay it. Your children will. They didn’t earn it, you did.
If I buy, say, some building work done, is it reasonable for me to say I paid tax on this money, so the builder shouldn’t?
Of course not.
@ david thorpe
but what if your family has never lived anywhere near the north of england? Should we southerners have to move? a single national rate of IHT, when houses make up the main componenet of most estates, is not a geographically equitable tax. Not content with subsiding northerners with the rest of the tax money made in the south, are we also to sell our houses to fund those regions that take out more than they put in to the national pot?
Inheritance tax isn’t a tax on you it is a taxed on unearned income received by the inheritor.
Why should labour be taxed at a minimum of 32% (tax+NI) but unearned income at 0% up to £350k?
I brought my children up to believe in the mantra:
“Give a man a fish and he will eat for a day. Teach a man to fish and he will eat for the rest of his life”
I’ve hopefully [so far so good…] taught them how to make their own money and fully intend to leave only whatever I can’t spend myself.
If we all paid sufficient tax, all of our children would benefit from a gold plated education, health service and perfectly adequate quality of life without any inheritance windfall.
“i faced the very real possibility that inheritance tax demands of about £300,000”
If as you say you were faced with a situation where your father could have the house sold from under him then you seem to have been very badly (if at all) advised (I can think of 2 or 3 ways of reducing that UHT liability and I’m far from an expert on the area).
To face IHT demands of £300k you are talking about an estate of over £1 million. That’s really a situation were its prudent to take advice prior to making a will – and a will which leaves the surviving partner inheiriting nothing seems rather unusual.
There are in any case provisions for paying IHT by installments where houses are involved.
The main reason for scrapping IHT is that its a pretty easy tax to avoid (often described as a “voluntary” tax)
@ LondonLiberal
Yours sounds like a rare case which involved complications due to a will making an incorrect assumption.
And while people generally do make use of parental income to get on the house ladder, surely £325k tax free is enough to get a decent deposit on a mortgage?
Like others in the thread are saying, don’t we want to encourage people to make their item way in life? And don’t we prefer when those from rich and poor background have equal opportunities rather than one having privileged access to the property ladder?
@ Libertarian
More detail?
“I’ve happily paid tax on this money when I earned it, … Therefore, I just don’t feel that I should have to pay again.
You won’t have to pay it. Your children will. They didn’t earn it, you did.”
Not the case – IHT is paid by the estate so it is the deceased who pays it (it is often done directly out of their bank accounts AIUI).
Inheritance tax is a grim tax, and massively unpopular for this reason. People work hard to provide for their children, often sacrificing greatly themselves. Taking away their ability to do this in the most significant way, by passing on their accumulated wealth, is a bad and foolish idea. We should be encouraging people to accumulate wealth and not fritter it away, between generations as much as within a single person’s life. Punitive taxes on wealth are as foolish as punitive taxes on income. Punitive taxes on end of life wealth are also taxes on aspiration and a person’s life-time of achievement. IHT is a tax on aspiration and nothing more.
It is also grossly inefficient at raising revenue. The very wealthy easily avoid it and it only catches the foolish, the moderately rich and the extremely unlucky. By only being enacted at death and having a high rate it gives people both every incentive and means to avoid it.
Of course capital should be taxed though. And no, despite the obssession of some people a Land Tax is not some magical solution. Inheritance tax should be dramatically reformed, to make is fairer, more popular and more effective at raising revenue.
Instead of just having a tax on someone’s estate when they die, have a capital transfer tax on all large gifts of wealth. And make it a tax on the person receiving the gift, not the person giving it. Give each person a £25,000 allowance a year and set the rate at 20%. I would bet that it would raise more money from the rich than the current tax and would have the advantage of not taxing wealth punitively. A win all round.
If you feel this way then go tell it to Clegg, Cable & Company for it is they that stopped Cameron and Osborne from making any movement in that direction.
We are ludicrously over-taxed in the UK and those that actually pay the taxes get rotten value for their money.
Those with sufficient means find ways to reduce or eliminate their various tax liabilities. For the less fortunate but thrifty of the baby-boomer generation the tax system has produced a cycle that encouraged marriage and saving for the young adult and now promotes extravagant consumption in later years.
You can’t argue with economic stimuli and I shall die a pauper and, if at all possible, at public expense.
A meritocracy should see individuals rise to the top because of their own capabilities, not the unassailable financial advantages that parents pass on to those that would never get there otherwise.
“Inheritance tax is a grim tax, and massively unpopular for this reason. ”
Great logic. Which taxes are happy and smiley then?
Inheritance is the enemy of meritocracy. If you want to live in a society with an even greater inequality of opportunity and which is therefore less efficient and productive (given that wealth will thus be held by those who inherit through chance of birth rather than those that work for it), then scrap IHT.
IHT is problematic though because of the ease of avoidance – just one reason why LVT is so much better. Another good form of equalling opportunities for the younger generations is to pay for education through progressive taxation – unfortunately, fiscally regressive tuition fees have been tripled, thus increasing future inequality.
I hope that my children have to pay IHT. It will mean that I have been able to leave them 165K each, not an insignificant amount. Otherwise some poor sap who is working hard will have to pay additional tax on their wages to save my kids paying on what would be additional money to their usual income…..
Firstly, thanks for the comments – most of which were very constructive and provoked a lot of thought.
@Jock that’s an interesting idea and something that I plan to research further. I’m going to read your blog in more detail tonight – thanks
@GrammarPolice Wonderful user-name! Where did you find your stats? I read a 2007 article in the Guardian that claimed that almost 14 million homeowners will be subject to inheritance tax, even after the rises in the threshold that were planned for 2010. Interestingly, they argued that if the IHT threshold had increased in line with house prices since 1988 it would now stand at £419,754! Also, yes, you are right. I don’t see it as fair to tax something that has already been taxed.
@AndrewDucker I can understand your argument but in many cases, £325 000 of assets would not be given to one person. This could be distributed amongst many individuals. Is it also fair to take 40% in this instance?
Furthermore, is financial aid the best way to help those you refer to as ‘disadvantaged’? Surely volunteering our time is just as useful? I remember being mentored by a volunteer university student whilst at sixth form and this helped me with my transition to Higher Education far more than any sum of money could have.
@DuncanStott Thank you for pointing out what I failed to mention – 40% over £325 000. In relation to your third point, you’re assuming that a ‘pleasant life’ can be measured in terms of one’s financial assets. That is fair enough, however, I prefer to measure the pleasantness of my life in terms of the time I get to spent with my family and so on; things that a person in receipt of inheritance tax may be unable to enjoy.
Furthermore, I am happy to see my income tax as I understand it to be an essential contribution to society. However, if it is also taxed via IHT then we are essentially, being taxed twice, hence, encouraging us to spend money before we pass away, which, I believe to be less economically helpful.
Finally, point 5, I cannot agree. I understand that value is a socially constructed concept. However, the hard-work of my community may not have directly contributed to the value of my property. In fact, the lack of it may occasionally detract from it. Anyway, surely, this is a zero sum game as my hard-work will have contributed to the value (or lack of it) of my neighbours’ properties.
@Richard If you reread the article more carefully you will see a number of points that relate directly to IHT. Furthermore, I state that I happily pay income tax as it is a contribution to society and the public services that some of us choose to use. Your point concerning VAT aids my argument, as I state that I have already paid tax on my income (and also, as you pointed out, on what I purchase in most cases), therefore, do not feel that it is fair to have to pay tax again.
Additionally, I mention that IHT was initially introduced in order to tax the rich. Due to a vast inflation in house-prices, many more of us will be subject to IHT upon our death, not just the middle classes, hence, defeating the original purpose of the tax. Particularly, as those that are genuinely very wealthy can afford to leave the country or hire costly accountants to hide their assets.
@BoliviaNewton-John I agree that wealth taxes are too complex and unfair, therefore, I would, like you, be interested in the concept of a land tax. Thanks for your comment.
@PrateekBuch Interesting point, however, I’m not sure that I agree that my success (or lack of it) is due to an excellent education. I attended a former-poly and know many ‘wealthy’ people with no education at all. Similarly, I don’t think that it is impossible for any of us to work hard and own a property of £325 000 or more, with the house and land prices that we are currently experiencing in the UK. One final point, society can share an individual’s success in ways that do not require a financial contribution, for example, volunteering with targeted groups
@PaulPettinger Very true, however, we haven’t yet moved taxation off things like trade and work. I don’t think that to become the anti-IHT party, we will have lost our soul as a party; it is good that we are such a broad range of individuals, yet have broadly similar values, within certain areas.
@Nonconformistradical Not all of us choose to marry or remain as registered civil parters. As we are a socially liberal party, then we need to acknowledge this in our policies.
@Tommy Do you think that by providing your children with a home or extra cash that you are preventing them from being judged on their own success?
@Charles I agree
@DavidOrr You mention unearned wealth… However, this wealth is earned, albeit by another family member. Would you tax a gift form your mother to your sister? This is, essentially, unearned.
@DavidThorpe Could you send me details of these houses in the North of England? As I’d very much like to invest in one if they only cost £64 000…! However, I’d have a long way to travel from Devon where property is much more expensive 🙂
This article is a breath of fresh air. Rebecca Tidy sounds like a nice person and a good mother. Working hard to build up assets to give to one’s children is a laudable thing to do and the state has no moral right to confiscate 40%. Many of the comments here have more than a touch of envy and class hatred in them.
“But it’s now a tax paid by many, as house and asset prices have risen to extraordinary levels; many being valued at over £325 000, which is the threshold for this tax.”
Asset prices of £325,000 still means ‘well off’ on any objective definition. And if the reason for people over-shooting the threshold is property values surely we want massive unearned gains (market fluctuation, absolutely nothing to do with ‘working hard for your children’) to be taxed? Don’t the children of home owners in major cities (especially London) have enough life-chance advantages already?
Inheritance tax should be abolished and replaced with a general “Gift Tax” (effectively moving the taxation from donor to recipient), which would have a lifetime allowance of similar magnitude to a lifetime of income tax allowances (currently ~£0.25m). This would encourage people to spread around wealth in their wills, as they could avoid tax by doing so. It’s also fair that people are taxed to a similar extent on windfalls as they are on work they slave 24/7 to earn. (Actually the argument is strong to tax income much less than gifts, but let’s go one step at a time!)
Oh, and has anyone mentioned LAND VALUE TAX yet? Most inherited wealth is in the form of land, and the lack of proper taxation on this is one of the reasons IHT appeared.
We should certainly tax unearned income, whatever its source, and I include in that the vast inflation in house prices which has ‘enrichened’ much of the south-east. It’s not true to suggest that tax will already have been paid on income which is gained through inheritance, some may well have been gained outside of the tax net. In any event, the urge to put our own first, and hang everyone else, is just precisely what’s wrong with society. IHT is one of the few taxes for which a moral , as well as a pragmatic, case might be made.
@ Rebecca
“However, the hard-work of my community may not have directly contributed to the value of my property.”
I fear you still have much to discover. Best wishes for your further research.
The idea of inheritance tax is something I support, the first problem of course is it is a tax on grieving people. The second problem is it needs to be paid from normally non-cash assets.
I know of one person who in order to pay a tax bill may have to sell his Mum’s home and force her partner and kids to move and find somewhere else to live. It is the bit about the tax, the demanding cash when there is no cash in the bank that is the hardest part about the tax.
My current thoughts are that the tax should be easier to administer and be affordable. As everybody has to go through probate even if they don’t pat IHT so the valuation side is done by all. That might for example mean that the limit could be reduced to just £50,000 and the rate dropped to 10%. I can’t calculate the tax take from this but it may end up being higher than the current system and would be seen as fairer as people will retain 90% of their inheritance.
“However, if it is also taxed via IHT then we are essentially, being taxed twice, hence, encouraging us to spend money before we pass away, which, I believe to be less economically helpful ”
So, you don’t agree with personal responsibility – the idea that you work for your own money that you then use to fund your working life and retirement? I can assure you that inheritance is less economically helpful. A society where peoples’ wealth is determined by accident of birth rather than through their endeavour is far less productive, efficient and economical than a meritocracy.
“, therefore, do not feel that it is fair to have to pay tax again”
How can you object to paying something when you’re dead? I can assure you that you won’t need it when you’re dead.
“England? As I’d very much like to invest in one if they only cost £64 000”
You want to invest in a house without knowing what state the house is in, what the area is like and what the rental yield is? It’s no wonder we had a massive housing bubble and a massive economic collapse if that’s the financial aptititude of the typical person. (by the way, there are plenty of houses in the north that go for 64k)
@LondonLiberal
“i faced the very real possibility that inheritance tax demands of about £300,000 would have landed on my doorstep upon my mother’s untimely death”
An inheritance tax demand of £300K would put your mother practically in the stinking rich category – because it would mean the estate was worth around £750K over and above the nil rate band applicable at the time of your mother’s death.
You don’t say when your mother died. There is a table at http://www.hmrc.gov.uk/rates/iht-thresholds.htm showing how the nil rate band has changed over time. But if it was within the last few years that would make your mother’s estate worth over a million.
However – could I be right in suspecting that is not what you meant? Did you mean an inheritance tax demand on an estate of £300K? Over and above the nil rate band or not? If the whole estate was £300K and your mother died on/after 6/4/2007 there wold be no inheritance tax payable because it would all fall within the nil rate band.
Anyway – if you do have a problem over inheritance tax and your mother died less than 2 years ago there is still time to do something about this – because a deed pf variation to minimise inheritance tax liability can be created up to 2 years after the death. You need to see a solicitor who deals with estates – not some crummy will-writing outfit.
From the point of view of revenue raising, taxing the rich is not necessarily very lucrative, because they can afford adequate advice on how to order their affairs so that the taxman can not “put the largest possible shovel into their grain-store”. (I think this a quote from a nineteenth century judge on tax avoidance.) So I’m afraid that inheritance tax has advantages of being not too difficult to collect from the comfortably off. Of course, your Daily Mail reader has been persuaded since Thatcher that he shouldn’t have to pay enough tax to provide government services.
So, on the whole, I don’t see anything wrong with a reasonable levy on the property someone no longer needs. There needs to be safeguards against marked ill-effects, such as depriving a not-well-off survivor of a home or the destruction of an otherwise viable business. There is still work to be done there, espcially when a home is shared by those not married.
People living a reasonable life-span are usually lucky enough to see their children established and can then start thinking about transferring assets to their grandchildren. It’s the early deaths that cause the hard cases.
There is merit in the argument that this issue mostly applies to priviliged (but not rich) people who have already used assets to give their children a better start than many, by getting them into more esteemed schools, helping them take internships and set up home.
You already DO have equality of opportunity. Free healthcare at the point of delivery. Free education to the point where you graduate. What more do you want? Somebody to do everything for you? The fact that this free education is not perfect, the fact that the free healthcare is not perfect, the fact that gainful employment is hard to come by has nothing to do with the want of funding. These are other structural or ideological problems that wont be cured by throwing more money at them. We had thirteen years of that and look where we are now.
What you DONT have is equality of outcome. And that you will never have, because some will always be prepared to work harder than others, make more sacrifices than others, push themselves harder than others. The kind of social engineering that would be required to give equality of outcome will never work in a thousand years.
Making everyone poorer to satiate some sort of self-loathing guilt trip or pandering to the green eyed monster, to do so cynically to win short term political advantage, as Labour had done, benefits nobody in the long run.
As another contributor has said, too much political short termism at play.
Although I agree with this article I think it fails to emphasize the single most important argument against inheritance tax. That is: rich people don’t pay it. Some of the comments have already mentioned this. It is a tax that hits the comfortably well-off but not necessarily the millionaires/billionaires of this country. It means the middle classes end up paying more tax than millionaires/billionaires who are creative enough to avoid it. A multi-millionaire could buy his children all houses and put them in their own names for example. The inheritance tax wouldn’t then tax those assets (but land value taxation would…). Considering how easy it is to avoid, one can only conclude that inheritance tax is a symptom of a tax system that doesn’t correctly tax unearned income in the first place. (Cllr Mark Wright is completely correct in this respect.)
@ Rebecca Tidy – the 6% figure is one that’s been in common currency for a few years – eg http://news.bbc.co.uk/1/hi/uk_politics/5267836.stm
It was also widely raised at the time that Osbourne scared Brown out of a GE by suggesting raising the inheritance tax levels.
(Don’t forget, inheritance tax is not payable when an estate passes between a wife and husband, or from one civil partner to another. Such couples can also transfer the unused element of their IHT-free allowance – £325,000 – to their spouse when they die, meaning that that a surviving individual can leave an estate of up to £625K without becoming eligible. This means that inheritance tax will often only bite where there is/has been no spouse.)
As many of the comments show, the conceptual difficulty with inheritance tax is that it’s seen as a tax on money you’ve already been taxed on, whereas in reality it’s a tax on unearned income. However, it would be vastly better to recognise that, and possibly encourage wider (but smaller) donations.
@ nonconformistradical
thanks for the legal advice. this all happened in 2000, when the IHT threshold was only £240k, and our house, which we had bought for 265k in 1994, had increased in value substantially thanks to the housing bubble. naturally we didn’t feel any richer, as it remained just our house, and as all homes in our home city, london, had increased proportionately, so it wasn’t as though we could cash in in our wealth anywhere. classic ‘asset rich cash poor’. in the end we did indeed get a deed of variation. however, one shouldn’t have to go through these cunning legal loopholes simply to not be thrown out of one’s house when one’s mother dies. and while i accept that one should plan ahead in financial matters, i would say that we had planned ahead, simply not for this sudden and unexpected eventuality. As for those people who say that everyone should start equal, while i agree with the sentiment, i would also say that wanting to provide security for your children is a natural human instinct, and we shouldn’t seek to remove the ability to do so simply for ideological reasons.
@Gene Thank you for pointing that out – it is a very valid point; income and sales tax has been taken.
@DavidOrr Do you think that directly providing the ‘poor’ with extra cash is going to create a more fair and equal society? I don’t. We need to invest time and effort in creating a culture of aspiration and help to provide the necessary skills for us all to have a similar opportunity to succeed in life.
@Outsider & @Demetrius Two interesting points – both worth investigating as a replacement to IHT
@Londonliberal I couldn’t agree more. When you’re mourning, financial considerations should be the least of your worries – selling a family home with memories and sentimental value would only worsen the situation
@libertarian Yes indeed!
@Jenny Barnes A lot of children do contribute to the maintenance of the family home and business and receive no wage in return. How can we assume that one’s children did not help them to earn this money? This is particularly relevant to farming families and I should imagine, those in many other industries…
@Timak Again, I don’t agree that this income is unearned – that is an assumption
@KirstendeKeyser I agree with you. However, not all of us live to see our children grow into adulthood and hence, may be unable to teach our children to ‘fish’. In the absence of this parental care, then perhaps our inheritance is our only chance of hoping that they learn to ‘fish’
@DanielHenry We do want to encourage our children to make their own way in life but it is a natural parental instinct to want to help them and one of the reasons I disagree with the principal of IHT is that it goes against this parental instinct. But, yes, very valid point you make.
“Personally, now that I know that the state will take 40% of my assets when I die, I shall find other ways of providing for my children during my lifetime. I will give them money, set them up in business if they desire, help buy a home for them so that they aren’t burdened by the huge mortgages that I currently pay, and hire tutors to ensure that they pass their exams and can go to university, so that, in turn, they can enjoy higher incomes throughout their lives. I will ease them into my professional networks so that they can start their working-lives with contacts and friends that can help them; whether they choose to work at the local corner-shop or begin a career in PR or finance.”
You are doing all these things because inheritance tax exists? So if it was scrapped, then you wouldn’t help them do well at school, find a good job and a decent home? I find that surprising.
@lloyd
“As everybody has to go through probate even if they don’t pat IHT so the valuation side is done by all. That might for example mean that the limit could be reduced to just £50,000 and the rate dropped to 10%. I can’t calculate the tax take from this but it may end up being higher than the current system and would be seen as fairer as people will retain 90% of their inheritance.”
that is a really interesting idea. i’d love to know what the revenue from such a proposal would be.
@ Donpaskini
I think that they’re saying that it’s an incentive. I think it gives a good example on how parents can help their children in a more creative and constructive way than just handing them a lump sum.
I think the best arguments against have been how easy it is to avoid. I’ve liked some of the ideas here to replace it with a “gift tax”.
I am very happy that the Lib Dems put a stop to these Tory inheritance cut plans.
I agree with Sara Scarlett. A sentence of such astonishing rarity that it needed typing 🙂
I think that Mark is basically stating what party policy is – ie move it to a tax paid by recipients with a personal allowance so that if you spread bequests among a number of people you can reduce IHT liability.
There is a point that taxes on death are in theory a good idea as at that point – as the individual no longer has any need of money – any unfairness will be minimised (even in the example given above you are still getting £1m for an “outlay” of £300k – good deal by any assessment).
@Rebecca – Houses in the North can be bought for well under £64k – see http://www.bbc.co.uk/news/business-12850510. There was IIRC an example of a house in Burnley that went for £10k recently though it was in a very poor state of repair. A search on Zoopla finds 400+ houses at £60k or under within 10 miles of Halifax.
On a general point, everyone, particularly if in any sort of relationship, should make a will and get advice on its implications (and probably set up enduring power of attorney provisions). As the example above shows there can be massive financial implications if you don’t.
Rebecca, it’s fantastic that you are taking time to respond to many of the commenters’ individual points.
If you find yourself favour a land value tax it’s because of exactly what I described – a tax on your personal wealth gain from the work of your community/society in general.
As a practical example, if a new train station opens within half a mile of your home, your house price shoots up because the land your house is on is now in a location with better transport links. But you didn’t build the station; it was built by society (by the government and/or private investors). Similarly, areas that have access to good state schools see house prices increase. It’s the value of the land that the house is on that pushes up the price.
In fact, think of the whole picture, and what gives land it’s value is it’s location, and what makes land values change from one location to another is the type of society that has built on it. Yes, you are part of your community, so your hard work adds a little bit to land values, but no more than all your neighbours. All that accrued wealth created by society shouldn’t all be siphoned off into private hands. Society should benefit from it, so it should be taxed.
Sara’s line above is so excellent it needs repeating: inheritance tax is a symptom of a tax system that doesn’t correctly tax unearned income in the first place. I’m glad the thrust of the comments seem to agree. Can we get land value tax into our next manifesto, as the replacement for council tax and IHT (and business rates may as well be rolled in there too)?
That awkward moment when you spot schoolboy grammatical errors in a comment that you just submitted. ‘Its’ not ‘it’s’. Tut.
Personally, now that I know that the state will take 40% of my assets when I die, I shall find other ways of providing for my children during my lifetime. I will give them money, set them up in business if they desire, help buy a home for them so that they aren’t burdened by the huge mortgages that I currently pay, and hire tutors to ensure that they pass their exams and can go to university, so that, in turn, they can enjoy higher incomes throughout their lives.
Well, even that is probably still better for the economy – and hence for the state – than the same money sitting in an investment account somewhere until you die.
>I want to be safe in the knowledge that if my partner and I both die, our children’s education will be paid for and they will be financially secure.
Not being flippant, but you have heard of life insurance? I made sure I took it out when my son was a baby. Along with income protection insurance (for long-term illness or disability).
> I’ve happily paid tax on this money when I earned it,
Confused here. Unless the value of your house is exactly the same as the amount you’ve paid for it.
If you bought the house for say £200k and it’s now worth £325k simply cos of house-price inflation, you’ve not paid tax on £100k of its value, or done anything to earn that added value.
All working people pay tax on interest* they get on money in savings accounts (above whatever you can put in an ISA). Which they’ve paid tax on when they earned it.
People who’ve saved hard for pensions with income they’ve paid tax on then get taxed if it pays out ‘too much’ when they retire.
Those are taxes on the prudent. Do you think that should go as well?
* about 0.00001% these days, of course!
All those of you complaining about inheritance tax because it is taxing the same money twice must get pretty irate every time you think about tax, after all let us consider a single pound of income that comes to me. It immediately gets taxed – TWICE – firstly for income tax, then national insurence, if I go out and spend it then it gets taxed – AGAIN – this time for VAT. The company who now has whatever is left of my pound in its coffers finds itself caught on the horns of a dilemma, either they take it as profit, in which case they get hit for corporation tax, or they spend it. If they spend it on things they need then its OK for a while, it could probably change hands from business to business several times down the supply chain without incurring VAT, however god help them if they spend it on anything else. Give it as a dividend to shareholders and –WHAM – Capital Gains Tax, spend it on fuel – KAZAM – fuel duty, premises – BIFF – commercial rates but worst of all if they have to spend it in wages…
… two more lots of tax and the whole thing starts all over again!
What I am trying to say is that tax happens when money changes hands, and occasionally even when it does not, saying that money gets taxed twice is like saying that raindrops have fallen twice, its just money moving about the economy and getting taxed as it goes. There is absolutely nothing at all unusual about inheritance tax in this respect, except, as others have pointed out, the person who receives the inheritance didn’t actually have to do anything but survive the person who gave it.
@Hywel In response to a similar comment I mentioned that sometimes inheritance can be “earnt” We really shouldn’t assume that it is unearnt, e.g. family businesses – farms, restaurants, shops, restaurants, and so on
@StephenW I agree that we should encourage people to accumulate wealth rather than fritter it away and think that the £25 000 yearly allowance and subsequent 20% tax rate sounds much fairer than the current system. You;re probably right – it would raise more money form the rich – 40% is such a large amount it seems very logical that people are often desperate to avoid it.
@AndrewTennant I don’t think that passing my assets onto my children will see them rise to the top – I simply want to provide for them and ensure that they are comfortable; a common parental desire
@SteveWay No-one is going to pay a higher level of tax on their monthly wage just because your children aren’t paying IHT, however, some people will have to be taxed twice – once on their income and again when they die, just because they have been prudent enough to pass their wealth onto their children
@CllrMarkWright Interesting suggestion – thanks! Especially the part about spreading wealth around!
@JohnM I wasn’t implying that we put our own first and “hang everyone else”. It’s a natural instinct to want to care for those with whom we have developed relationships and bonds. Abolishing inheritance tax would not “hang everyone else” as we can volunteer our time with those in need – by re-skilling or up-skilling them, or help with local charities – many of which are far more useful than providing extra money for those that don’t have it. Particularly, as we will be teaching individuals how to generate money for themselves, rather than depending on the state.
@AndrewDuffield You are correct; I do have much to discover and understand all of the arguments that developments that I have not had control over may increase the value of my land. However, I also contribute to my local community which, in turn, I hope will raise the value of my neighbours’ properties.
@Lloyd Yes – that is one of my main points – the tax being one on grieving people. To me, and I should imagine many others, it is very much an emotional issue. I think that your suggestion would be a big improvement on the current system and far easier for those grieving
@IanSanderson Agreed – taxing the rich is not the solution to everything – for the reason you stated. We do have to take into account those that do not have a reasonable lifespan and get to see their children grow up and so on. I don’t think that we should penalise those that have worked to provide their children with better schools, internships and so on, though. We all have the option to work hard in order to do this for our children if we wish. Admittedly, we can’t all send our children to Eton or somewhere similar, however, we can work in order to provide them with the extra tuition they may occasionally need and support them throughout their internships, even if it’s simply giving them food and essentials – as many parents of university students do!
@SaraScarlett Yes, perhaps I should have emphasised the irony of that lightly more 🙂 It seems to penalise the middle-classes more than anyone else.
@GrammarPolice Thanks for the link – it;s interesting how many different figures are floating around – all from seemingly ‘reputable’ sources. I;d like to see how the figures have changed since 2006. However, as I’ve mentioned a few times already, I really don’t see it as ‘unearned’ income – it depends upon one’s perception of the situation I suppose.
Your idea to encourage wider and smaller donations is interesting. It’s such a shame that current system doesn’t even support this.
@donpaskini Daniel Henry (2 posts below you) explains my sentiment perfectly! It is an incentive to provide your children with more
@DanielHenry Thanks for explaining what I meant to @DonPaskini! 🙂
@Tom Are you also happy that someone mourning a lost family member has to deal with the additional hassle of selling their estate, often of sentimental value, whilst they are grieving? It’s extra work at a time when one is least able to cope with it. No-one wants their loved ones to experience this.
@Hywel Thanks for the link! I am genuinely amazed at the house prices – I thought house prices were low where I lived!
@DuncanStott I understand your argument about value being a social construction – increased by developments that people perceive as desirable – I discussed this with a wonderful chap in my local party (Steven Clarke – you might want to talk to him if you know each other; very interesting convo) but essentially, we did contribute to that station or that good state school… And do we really need to tax every eventuality to function adequately as a society.
The wealth being accrued by society isn’t being siphoned off – those in the local area are gaining from it and to tax someone just because they have an extra amenity adding to the value of their home, particularly when they’ve already paid income tax and council tax just seems excessive. Especially when those individuals that have chosen not to be economically active or live in private accommodation and therefore, not to contribute to society in a major way, are, generally speaking, not being taxed on this extra convenience.
By the way, I didn’t notice your grammatical error 🙂
@LizW I believe that if you researched this you would find that immediate consumption provides a short-term gain for society rather than long-term advantage.
@Cassie Thank you for taking the time to comment – it’s interesting to hear a range of opinions. Much food for thought.
I have indeed heard of life-insurance; I am an owner of a policy myself. However, this does not provide a vast sum for one’s children (particularly if you have more than one) and most certainly does not justify an inheritance tax. I am not sure about the relevance of income-protection insurance to this argument though…
Additionally, some of the increase in house-prices can be attributed to speculation or buying in a redevelopment zone, home-improvements and so on. It is wrong to assume that none of this increase in value has been earnt.
Another relevant suggestion here would be that as house prices have inflated so vastly, we should have the opportunity to provide for our children so that they can eventually get on the property ladder just like we have. Instead, we are being penalised for working hard and saving throughout our lives, therefore, encouraging us to give large gifts to our children throughout our lives.
@SImonBeard Thanks for commenting! You’ve explained one of the many reasons why this tax is so unpopular. In a nut-shell. However, I would like to point out, once more, that we are wrong to assume that these assets are unearnt.
As someone who is caught in the benefit poverty trap, i believe that the inheritance tax threshold before such a tax is payable should be set at £5 million pounds. If we want people to aspire to a financially secure lifestyle, they should not be penalised for providing for their children and grandchildren. The government is unlikely to lose any tax revenue anyway because the heirs will spend or invest their inheritance anyway, thus stimulating the economy.
I have a bigger gripe about professional people in business who pay themselves performance bonuses when the business they are running is making a loss. Bonuses paid out of turnover should be taxed at 100%; bonuses paid out of profits should be taxed at 10%. If directors decide to have their whole salary as a bonus out of profits they would reduce their tax bill that way. If the business made a loss, well that is risk taking. With their own life and work.
There are some incorrect assumptions in this article: that a few hours volunteering will help reduce the gap between the opportunities for the children of the wealthy and the children of the poor, that everyone’s children have access to “internships” or “professional networks” (how do you get these internships? are they available equally for all children?) and that all these advantages can be accumulated through simple “hard work”. Well the office cleaner and the local barmaids work hard but their children won’t be doing internships or entering a professional network. There is a lot of misinformation on here too: life insurance is widely used for providing tax-efficiently for children (I have regularly seen benefits in the hundreds of thousands), special rules apply to IHT in respect of farms and IIRC other business assets, the wealthy cannot avoid IHT by simply “moving abroad” or giving property to their children. Reducing the advantages available to the children of the wealthy will take a lot more than some mentoring. It will take massive changes in the way in which work is distributed in this country. That will cost considerable money, I think. Where will that money come from? I am sure that the writer is a well-meaning, kind-hearted person but someone who needs to take a very long hard look at the live chances of a wealthy person’s children when compared to the life chances of the office cleaner’s children. There are an average of 70 applicants for every job around here, I have heard said. What use is some mentoring when the ratio is that horrendous? It might almost be better not to give poorer kids the false hope that they can ever enter into a well-paid job. The wealthy will always want to ensure that their children have advantages that are kept from the children of the poor. Like the scorpion said to the frog: it’s in their nature.
We have lots and lots of indirect taxation that disproportionately takes money from low and average income families. Personally. i think that taking money off dead people is more moral than taking it from living people. The reality is that we need stop endless cycle of giving money to money. lower the 50p tax rate because it doesn’t raise that much money and sends out a bad message.
As for the argument that raising inheritance tax would encourage people to fritter away their money (a) that means more money goes back into the economy (b) it might mean more money goes to good causes and (c) Businesses involve partners, managers, legal contracts, shareholders and expansion which means that it is simplistic to see them as the work of one person or family so most of them would continue after the death of the originator and a lot of the offspring involved sell up anyway.
Warren Buffet (NY Times article): “I don’t believe in dynastic wealth”, Warren Buffett said, calling those who grow up in wealthy circumstances “members of the lucky sperm club”.
Liberalism is about equality of opportunity, justice and free speech, not lucky sperm.
I wonder if these are rhetorical children or whether there is an actual Tarquin and Jocasta somewhere calculating the likely worth of an estate left by a PhD student of “Political Science”. Funny isn’t it how opponents of IHT always clothe themselves in the funeral shroud and never in the quickly discarded black of the grasping relative.
As pointed out above the ‘taxed twice’ argument is simply economically illiterate. In cases where the wealth has simply accrued from the 4 postwar property booms – and I guess this is where the majority of the moaners are coming from – it is more pertinent to say that it is doubly unearned.
The idea that IHT disincentivizes effort is comical. I find it touching that the author’s parents have worked more on her behalf than their own but in my experience people generally earn money so that they have a good life. Having something to pass onto the children is a nice by-product. The truth is, as any decent economist or indeed capitalist, will tell you is that inheritance disincentivizes effort. Why work hard or invest when you can expect to inherit in middle age?
Ah, but whatabout when the children, the poor darlings, who have contributed to their parents wealth? Yes, IHT is hard on children who have survived on bread and water while they built up their parents wealth. But it can be dealt with rather easily by the parents giving the children fair recompense before they croak.
If there is such a thing as a good tax then IHT is it. If you believe in meritocracy, social mobility, fairness, and the productive allocation of capital then you believe in inheritance tax. If you believe that the world should simply hand you great wodges of money without effort on your part then you believe in something else. What it is exactly that you
believe in is something you might ask yourself while you are perusing the actuarial tables.
@AndrewR
Quite
@Rebecca Tidy
You have publically published on your facebook info you admiration for Margaret Thatcher and Sarah Palin. Can you please tell me what it is you admire about these two individuals?
I’d ask of any politician, with little hope of an answer, would you prefer to tax generosity or greed?
@ Rebecca, you argue that people should not be taxed twice, but also that the threshold is unfair because it hits lots of people because the price of people’s home has gone up.
History shows that house prices largely increase due to land values going up, rather than because the property owners invest in them, and it is the community that creates this value, not the land owner/ user, yet this gain in their wealth is not taxed.
The large increase in house prices in recent years (over and above the economic growth rate of the country and inflation) represents a transition of wealth to those who own land and property from those who do not; and more generally, from younger to older generations. By my reckoning the fact that lots of estates are incurring inheritance tax because of the big increase in the value of homes is an argument for its retention, not abolition.
How do you propose to address this generational and social inequity? If you follow the analysis above then if you just scrap inheritance tax society will become less equal and it will be easier, rather than harder, to predict people’s life chances and material wellbeing in their life from birth.
Thanks for replying to posters individually.
Hard work and income are anything but directly proportional. Income in a free market is distributed to the powerful from the weak. Progressive income taxes redress some of the imbalance inherent in that system and is therefore a just system of taxation in a free market. Inheritance tax redresses some of the imbalance left after that.
The dead cannot be taxed. To claim to have paid tax twice on the same income is absurd if the second instance of taxation is after death.
Whilst the idea of a land tax does address some issues of inherited privilege the method usually proposed is one that continuously taxes the notional value of land on a regular basis whilst no income is being accrued from that land. This is the modern day equivalent of the window tax, it is in effect a tax on where you plonk your backside to watch the telly. In fact it is actually a tax on simply breathing whilst having a roof over your head. LVT taken at the point at which some actual benefit accrues might offer some fairness i.e. at the point of sale or loans taken on the value of land to be repaid at the point of sale, although neither of these would offer a regular income to the state.
In a capitalist system where capital and gold act in exactly the same iniquitous way as land wealth why should LVT offer a more just system than the taxation of other assets, including innate talents? In a free market system where the scarcity of ones innate talents rather than ones effort are the determinant of ones income, innate talents act in the same way as land wealth, why should the income accrued be any less liable to tax? If talents are innate (it’s a good bet that they are otherwise it would be possible for me to work hard enough to be as good at basketball as Michael Jordan) then they have not been earned so why is a meritocracy any more just than an aristocracy? For that matter the propensity for effort is also an innate talent so why should effort be the determinant of income at all?
And by the way, not all inheritance tax is paid by children. As an unmarried couple either my partner or I will be liable to pay unless we can manage a simultaneous death.
@JRC
“The dead cannot be taxed”
Not only can they be taxed, they can be taxed even if they weren’t a tax payer when alive, from the HMRC site:
“a non-taxpayer’s right to receive interest tax-free will end; from the date of death savings interest will be taxed “
Well well, a Lib Dem arguing that inheritance tax should be axed.
People should be allowed to gain hundreds of thousands if not millions in untaxed wealth (and wealth equals privilege) simply because of who their parents were.
I’m REALLY struggling to see the difference between you guys and the Tories, forget the coalition, maybe the two parties should just merge. Might as well stop the pretending and self denial and just admit that you’re socially liberal Tories now (except when it comes to issues like prostitution and drugs where you’re all socially conservative).
PS. I forgot to add in my last comment. Your children inheriting huge sums of money tax free, just because they happened to be born to you and not another mother is not meritocratic, it’s aristocratic, kinda like the way 19th century Tories were aristocratic.
@RobertWootton Agreed
@EdShepherd I was not referring to a ‘few hours volunteering’ – but a structured programme. For example, a number of Universities run a volunteer programme where students work with children in schools that typically send few children off to university. One can find several interesting case-studies that demonstrate the effectiveness of this work.
Furthermore, the bar-staff and cleaning staff you refer to would have had the option to remain in free education until the age of 18 and now have the option of entering higher education, assuming that they are not happy with their lifestyle of course. However, many of my friends choosing such work are actually perfectly content with their lifestyle and would be offended at the suggestion that those choosing a higher paid vocation should subsidise their lifestyle choice via taxes.
You discuss reducing the assets available to children of the wealthy. Why do you wish them to live a less comfortable existence? Personally, I would rather focus upon increasing the assets or more specifically, the quality of life, of those that are considered ‘poor’. One could be forgiven for thinking that the tone of your voice implies a slight degree of class hatred.
There are numerous studies that show that mentoring can be highly effective in raising aspirations and helping individuals into meaningful employment. Finally, it upsets me that you think that it may be better not to “give poorer children the false hope that they can ever enter into a well-paid job”. To be honest, I have nothing to say to that assertion as it is ludicrous.
@Glenn In all fairness, we have just taken over 600 000 people on lower wages out of income tax
@Steve Why do so many people assume that quality of wealth equates to equality of opportunity? There are so many extraneous factors including intelligence, health, and so on.
@AndrewR Thank you for your comment, however, I am afraid that I do not understand what point you are trying to make and why you assume that I would choose to call my children Tarquin or Jocasta? If you could explain further then I would be happy to engage in further debate.
@Steve I admire Margaret Thatcher as she is a living example of social mobility; born to a couple living in a flat above a shop, a scholarship girl, and eventually, our first female PM. I’m sure you will agree that it is great to see someone from a group that is typically under-represented in politics become successful. I admire Sarah Palin, again, regardless of her stance on policy, simply because she stands strong in the face of adversity and champions what she believes in.
@PaulPettinger I really do understand this argument and would like to thank people for pointing it out. It is logical. Perhaps I should have made this clearer in my post, but one of my main objection to this tax is that it is on the grieving. I know from personal experience that when grieving, the last thing you need is financial stress and I am sure that few would disagree with this. Inheritance tax is difficult because it is emotional in addition to being purely functional.
Generational and social inequality is a big issue. However, I don’t think that throwing money at a problem is going to solve it. If I knew precisely how to solve it in its entirety then I think I would probably be Prime Minister now, which clearly I am not.
I try hard to make a difference via volunteering, but in all honesty, one person volunteering isn’t going to solve all of society’s problems and neither is taking 40% of one’s assets upon their death. However, if we all spend a few hours a week offering support to those in our area then perhaps we can begin to make a difference. After all, the last Labour gov’t with all of their social equality initiatives have proven that vast amounts of funding don’t provide a solution.
@JRC Thanks for taking the time to comment – it really is good to hear different views. I agree; hard-work and income aren’t always directly proportional. However, hard work, wise decisions (such as training and so on) and income are generally proportional.
Of course, not everyone is capable of being a banker, pop-star (even), etc, but a combination of the free education we receive until the age of 18 and hard-work clearly help. Couldn’t possibly comment on what you said about land-tax as I am no expert in that area 🙂
Oh and by the way, I’m sorry if you thought I was suggesting that anyone could work hard and be the next Michael Jordan – I definitely was not! I was implying that we can all find something that we are okay at and earn money from that, e.g. accounts, plumbing, and so on.
@chris_sh Interesting… Thanks for pointing that out!
@AndrewR
Quite
@Rebecca Tidy
You have publically published on your facebook info you admiration for Margaret Thatcher and Sarah Palin. Can you please tell me what it is you admire about these two individuals?
Lib Dems who write on LibDemVoice admire Sarah Palin, I’m glad I left the Liberal Democrats, clearly NOT the party for me…
I will add that, I would not dream of telling my child that he was going to inherit x amount of money and various properties when grandpa dies, because it’ can sour family relationships and is just unseemly.
No one is suggesting that we tax inherited wealth so highly that the dear sprogs would be living in cardboard boxes. Sensible parents make provisions that encourage their children to lead productive lives. In most cases those provision would still be made if the inheritance tax was increased. And I think it is absolutely ludicrous that inherited windfalls are taxed at a lower rate than earned income! You should see an inheritance as a nice bonus, a bit of extra money, not as a birthright that can be passed from generation to generation for millennia.
Rebecca, with the greatest of respect, haven’t you just effectively offered the big society as an alternative to inheritance tax? Also, on a separate issue, you could make the same compliments about Margaret Thatcher (who didn’t exactly come from a poor background and also happened to marry money, which helped her political career) and Sarah Palin as a range of recent and current military dictators!
“Why do so many people assume that quality of wealth equates to equality of opportunity? ”
Because of the overwhelming evidence that the children of the wealthy are more likely to (financially) succeed. All one needs to do is look at the proportion of privately educated individuals in the elite universities and professions. The only way this hypothesis can’t hold true is if the children of the rich are genetically superior to everyone else. In the absence of such evidence, it is safe to assume that their advantage in life is bought by their parents wealth. An economy where the positions of power, responsibility and wealth are distributed to those with wealth is less efficient, harmonious and fair than a meritocracy.
With respect, it is clear that you are not reading an analytical subject involving critical thinking. Many of the arguments you have presented are either logically flawed or contradictory.
@Paul Pettinger
“you could make the same compliments about Margaret Thatcher (who didn’t exactly come from a poor background and also happened to marry money, which helped her political career) and Sarah Palin as a range of recent and current military dictators!”
Sureky you could make the same comment about any leader – regardless of background?
@Rebecca
Whilst I like the idea of a gift tax paid by the recepient, I don’t think another option has been considered (or if it has, I’ve been to blind to see it).
As most of the resentment seems to arise from house prices, why not bring IHT into line with CGT and make the primary residence exempt?
@DavidOrr Do you think that directly providing the ‘poor’ with extra cash is going to create a more fair and equal society? I don’t. We need to invest time and effort in creating a culture of aspiration and help to provide the necessary skills for us all to have a similar opportunity to succeed in life.
You perversely miss the point or rather your deep social and political conservatism prohibits an understanding of the importance of taxes being imposed on those with greater wealth to support through our welfare state those excluded from society to help provide them with the means to improve their position. This is why scrapping the EMA & raising of University fees was so detrimental to the chances of poorer young people to afford to experience college and the life chances offered. Only by a fair taxation mainly falling on the wealthy can society be rebalanced to support the oportunities for lower income families. To say ‘providing the poor with cash is dumb in the extreme but there again – as Steve pointed out:
‘You have publically published on your facebook info your admiration for Margaret Thatcher and Sarah Palin. Can you please tell me what it is you admire about these two individuals?’ I think we might be able to guess why you are inspired by such obnoxious individuals and no doubt by the flat earth loonies of the far Right ‘Tea Party too.
I am of the opinion that you like most right wing Conservatives seem to simply prefer selfishness & greed to creating a fair and equal society – but there again wasn’t it Thatcher who infamously stated there is not such thing as society.
Mark Wright is right. Inheritance tax should be like any other tax on income and paid by the recipient, not the donor.
Indeed, I believed that to be Liberal Democrat policy.
It means that if any of us prefers to pay it before we die, it would reduce the tax paid. It should also be possible to defer taking all of an inheritance, lending the money to the Treasury until taking the dosh and paying tax withion that year’s income.
But I seem to recall in he late 1970s that Dane Clouston succeeded in pushing though a Liberal Assembley a proposal to take all inheritence above a certain tax free level and dividing it up and giving everyone an inheritance at age 18 or whatever.
It would certainly ensure that everyone had a stake in the country, and that we all begin life’s great race at the same starting post.
@Rebecca Tidy
What a great thread. After you argued against inheritance tax, I was expecting a flame war, but instead it’s been a thread full of civilised debate. And well done for the way you’ve carefuilly engaged with people who have replied.
Not that I agree with you in the least. All taxes have their problems but are a necessary evil in order to have decent public services. I think taxing inheriitance is less problematic than a lot of other taxes. But, if there’s a way to adjust the tax, as some have suggested, to make it less easy to avoid, that’s certainly worth looking into.
But despite disagreeing with you, I applaud you for having the courage to go against the consensus in the party. We are broad church, and welcome people with a wide range of opinions, and long may that remain so.
Yeah. I’d like to echo what George said. Nicely done. 🙂
“the conceptual difficulty with inheritance tax is that it’s seen as a tax on money you’ve already been taxed on, whereas in reality it’s a tax on unearned income. However, it would be vastly better to recognise that, and possibly encourage wider (but smaller) donations.”
The current inheritance tax law allows one to give small gifts every year during one’s lifetime without risking incurring inheritance tax on such gifts – see rules at
http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm
These rules include giving away up to £3000 in any one tax year, any number of small gifts of no more than £250, wedding presents to children/grandchildren etc.
However the limits on the amounts involved have been the same for ever and a day – there might be merit in increasing them to take some account of inflation.
It would however be better in my view to tax recipients rather than estates on gifts above a certain value – which might encourage the spreading of the estate among more people.
“As an unmarried couple either my partner or I will be liable to pay unless we can manage a simultaneous death.”
If you were in a civil partnership and each leaves their estate to the other partner in their will, then there is no IHT payable on the first death – it is all exempt (you have to have a permanent home in the UK – this applies to married couples as well). Then on the death of the 2nd partner the unused nil rate band from the first estate can be transferred to the 2nd estate making £650K free of IHT.
IHT is an anachronism left over from the days when economic power and political power were intimately tied to the ownership of land. Democracy and the rise of the knowledge economy have hugely changed that equation.
It is also designed in a way that motivates the rich to avoid it and leaves the unwitting with a huge marginal rates.
In this case it seems that Lib Dem policy has got it right (to almost quote Hywel, that is a sentence I write so rarely it is worth recording 😉
It would be an achievement if the coalition could achieve reform of what is a massively inefficient tax in the second half of the parliament but the political cost of being seen to prioritise this over other issues may be too great.
Incidentally I am not sure I have ever seen an LDV thread with 81 – relatively troll-free – comments most of which are thoughtful and thought provoking.
Rebecca,
Hard work and income are generally inversely proportional hence the emphasis we place on education and wise decisions when trying to advise children on how to have a better future. Wise decisions are an illusion, ‘lucky decisions’ is a more apt description, wisdom in career decisions would require both an ability to see into the future and the ability to make free choices neither of which are presently available to humankind.
Free education up until the age of 18 provides wider scope for individuals to realise their capabilities. If one of those capabilities is a propensity for hard work it may open more opportunities but the income that is available subsequently will depend on the scarcity of the capabilities the individual possesses.
As for an ability for all to become as gifted as Michael Jordan I was seeking to illustrate through an absurd exaggeration the falsehood in believing that hard work has an impact on life’s options. As for all being capable of becoming accountants or plumbers through sheer hard work I suggest you try it and see how you estimate the effort it takes you to carry out either role against someone with a greater innate propensity for the requisite skills for each task and then see if your greater effort (assuming this is, you are less able than the average already qualified plumber or accountant at their job) is rewarded in your pay packet. Most people can of course become proficient at a trade, although not necessarily one of their choosing, their income though will depend on the scarcity of people who are also proficient at their trade. Why should rewards for inherited talents be any less iniquitous than inherited wealth from any other source?
So your proposition that it is your right to provide as much comfort and privilege as you can for your children from ‘beyond the grave’ through your own ‘hard work’ is false. Your capability to provide for your children after death is dependent upon your power in the market place. Your power in the market place is dependent on your innate talents. You may also be in a stronger position to accrue wealth through capital that you inherited from your parents. Your hard work will have added something to the pot but much less than any of the other components and even then it is unlikely that you will have worked significantly harder than most other full time workers in skilled or unskilled employment.
However, these are arguments that show redistribution through income taxes is just and whilst they coincide with some of the arguments for inheritance tax are mostly designed to counter the argument that LVT is a just replacement for income tax.
The argument against your view that inheritance tax is unjust; as it is an infringement of your right to provide for your children from beyond the grave is: First, that intergenerational inheritance of wealth is also intergenerational inheritance of privilege, which as you point out we frown upon when passed on nepotistically through internships, gifts, loans etc. during life, and Second, that to declare that passing down an inheritance is a right that must not be infringed is to extend human rights to the dead. There is much to debate in the solely individual rights based existence that Liberals would wish to exist, I didn’t think that debate would come to needing to disprove the justice in posthumous property rights. There is no right to provide for children beyond the grave, it is simply a social convention that we allow to continue to exist. To argue that this ‘right’ is being infringed, by 40% as you would have it, would require us to understand that our property is contiguous with the self and also that we live on through it after our corporeal demise. Although, as Chris_sh points out the HMRC may agree with you.
Chris_sh,
Thanks for that, I’ve come over all giddy now that the HMRC has declared that I will continue to live on through my ISA. I might have to consider that religious malarky a bit more seriously with there being an officially sanctioned tax-rated afterlife.
Nonconformistradical,
thanks for the advice but as an old romantic deluded by a feeling that I possess free will, I do not believe that my relationship should include a contractual obligation to the state or each other.
Someone wrote: We are broad church, and welcome people with a wide range of opinions, and long may that remain so.
Indeed. But so broad that the name Liberal Democrat doesn’t mean anything. Now when I hear that someone is a Liberal Democrat I will know that, that tells me absolutely nothing about what they might actually believe.
Seems to me that Liberal Democrats can stand for anything or nothing…
Ed: You should see some of the personal insults that were moderated though 🙂 (But good to know that you think it’s helped make for a more constructive sort of thread.)
JRC
LOL – you’re welcome, I bet that like me you thought the saying “the only certainty is death and taxes” was put in that order to rhyme and that it wasn’t a statement of linear events.
Can I add an additional fly to the ointment?
” … that passing down an inheritance is a right that must not be infringed is to extend human rights to the dead.”
I think you may find that the dead still retain some human rights (at least under the ECHR), e.g. the right for certain information to be kept private (e.g. records for those in care). So it isn’t so much a case of extending rights to the dead, but more a case of deciding which rights should apply. As a side note, I believe the ECHR can also be used by companies, so you can gain protection as a corporate entity rather than as a living breathing person.
Having said all of that, I do agree with a lot of what you say regarding talents and luck, being in the right place at the right time can earn you a fortune. Probably the biggest problem with IHT is the name; it conjures up visions of morbid tax men raiding your parents assets, which is why I like the idea of the gift tax that others have mentioned. You wouldn’t even need a new tax to cover this, it could be incorporated into CGT as this already covers lucky windfalls etc (but knowing how politicians love to be seen to be doing things, I would guess a whole new tax structure would happen).
In relation to these Sarah Palin and Margaret Thatcher comments; can I please point out that I am also a “Facebook Fan” of Hillary Clinton and Gabrielle Giffords, both of whom are on the political left. However, I can see how that could hinder your argument:
“I think we might be able to guess why you are inspired by such obnoxious individuals and no doubt by the flat earth loonies of the far Right ‘Tea Party too.”
I understand this is a controversial area but I think it is important to acknowledge that some Lib Dems do not support the concept of a tax on inheritance, for emotional as well as functional issues. It is a difficult topic as it can evoke further difficulty at a time of great emotional stress.
Oh and thanks to everyone that said the article was interesting, despite not agreeing 🙂
At 25/08/2011 16:10 JRC wrote:
Unless you think that one person having more windows meant that they could monopolise sunlight such that others could not have any without paying more you cannot compare land tax and window tax. For those who rent, increases (rarely but possibly decreases too) in location value are demanded by landowners regardless of whether the tenant’s income has changed in line with that location value. They too face a stark choice – pay up or move somewhere cheaper. Except they are charged tax on their incomes too, so they are less likely to be able to save and plan to stay there even when location value increases than everyone would in an LVT system.
And, in a very real sense, we all, in fact, rent. Purchasing a location is merely paying over a flow of future expected rents capitalised at current rental values now to the current owner (usually by way of asking a bank to finance that) because you think the net present value of those capitalised rents will be lower than what you would pay out in variable/increasing rents over the life of that loan.
Churchill answered this in 1908 and 1909 as he toured the country arguing in favour of Lloyd-George’s land taxes. Capital and gold, as you put it, do not act in “exactly the sane iniquitous way as land wealth” – except perhaps under a gold currency system where a relatively fixed supply of gold might be hoarded to the detriment of others. Although in practice even that is questionable as more hoarded gold will lead to an increase in price of gold and an increase in supply from others not wanting to hoard it and others still able to increase the supply by increasing mining capactiy.
One’s innate talents are not usually “unique” in the sense that they can act as a monopoly in the same way that land, or more properly speaking, location, is a monopoly. The scarcity value of Michael Jordan’s talent is not something that screws the very life out of everyone who wants to watch, or play, basketball. Whilst there is an “economic rent” (clearly Jordan would play basket ball with a salary only just more than he might get for any other kind of work he could do – many lesser, or less discovered, players already do in the “fourth division” or whatever the equivalent is) it does not have the effect of “economic rent” on location forcing all those around him to pay scarcity rent for the right to have somewhere to lay their heads.
John Rawls picked on a sportsman too to illustrate the iniquity of “innate talent”. But he was wrong. That “innate talent” is only useful to Jordan et al whilst people want to hand over some of their discretionary spending watching him play. They do not need it to live as they do a piece of land on which to “plonk their backside to watch the telly” as you put it above.
Churchill was more prosaic. He used the example of a doctor – if there’s only one in a community, sure, he can charge scarcity rents for his services (unless his price is artificially restricted by the state setting it). But there is always an opportunity, unless he is the only doctor in the world, for another doctor to see that one making a mint from his scarcity and move into that community to take some of the action and reduce the cost to the residents. You cannot do the same with land.
…and none of the previous addresses where location value actually comes from of course. When I pay income tax, some/much of that is spent on such things as infrastructure that feed directly the cost of land affected by it. Would it not be so much simpler and more equitable for me to pay tax on the result of that infrastructure spending (changes in location values) than in the completely unconnected amount I earn. As it stands, people in low location value areas pay income tax that feeds directly into increasing location values of those locations better connected than mine.
Jock,
The land that most people own is no more than the area on which their home stands. This does not monopolise anything in such a way as to restrict the freedom of anyone to live their life. Nothing I have said is in disagreement with the notion of wealth or land taxes but I disagree that taxing them on a continual basis that treats the land on which someones home sits as a source of ongoing income is just. Such a tax would force people to work in order to stay in their home with that amount increasing simply because the market or inflation had changed the value of the land on which their home sits. My mother, for example, who bought her council house because the mortgage was cheaper than the rent, would be forced to find a way of paying tax or to move from the place she raised her children and nursed her husband through his final days simply because her village is now a desirable place for the middle classes to live. Under such a system of ongoing regular taxation based on notional land value the less well of would be pushed into ghetto’s of low land value.
If she were to sell her house then I cannot see why she should not be taxed accordingly at the point of sale when some actual earnings from her good fortune have occurred. If land taxes were needed to provide a regular tax take for society then I cannot see why a loan system that would provide for the value of the tax to be paid upfront by the loan and retrieved on the sale of the property or death of the loanee would not be appropriate. The system usually proffered though is one that requires home owners to pay regularly to the state an amount based on some notional value of land. The result of such a system would be that everybody would be required to work to pay the state for the full extent of their lives simply for fluctuations in the value of the land they sit on. The only ones free from such a burden would be those who have amassed or inherited a fortune in other assets.
I am not sure if their is another basketball example to which Rawls specifically referred but I think the example you mean is the Wilt Chamberlain story posited by Robert Nozick. This story is a thought experiment designed by Nozick to demonstrate that transactions between consenting adults should not be taxed as to do so would be immoral. Nozick’s purpose was to support his thesis that all taxation is tantamount to slavery. Further to this theory that taxation is immoral and planned distributions of wealth wrong he also declared that all natural property is already attached i.e. it belongs to someone already. The owner of any property is fully entitled to do with it as they will which would normally mean pass it down through the family line. Ultimately Nozick’s purpose was to show that Wilt Chamberlain was fully entitled to his wealth as it was accrued through the willing transactions of other adults, that he was free to purchase whatever he wished, including land, with that wealth and that whatever he owned was fully at his disposal to give as inheritance or gift to whomever he wished. You would not be morally entitled to tax or have any claim over any pre-attached property if Nozick is correct. The Wilt Chamberlain story is as much against land taxes as it is income taxes as Nozick’s proof depends upon a theory of self-ownership that implies property ownership is absolute as it is an extension of the self. In other words Chamberlain’s property is the product of his self and is therefore an extension his self. His land is the moral equivalent of his arm.
Rawls, as far as I am aware did not try to demonstrate that there was any iniquity in the distribution of innate talents only that the unequal distribution of talents did not provide any justification for the unequal distribution of primary goods.
My attempts to demonstrate the place of scarcity in the market place was to demonstrate that power, not effort, is the prime factor in wealth distribution within the capitalist system. Scarcity of talents is one factor in the power an individual can wield. The extreme example of the individual Doctor is illustrative but not wholly productive. The proliferation of skills at all levels is what governs individual recompense for ones time. Doctors are paid more than teachers per hour because there are fewer of them, they can therefore bargain harder. It can’t be because Doctors offer us more, teachers are instrumental in the life chances each of us have and what kind of life we will have, whereas most of us will receive the vast majority of our medical care in the last two weeks of our lives. However, power can also be seen in the fact that although girls are demonstrated to work harder and achieve better results in education they continue to be paid significantly less for their time in the workplace.
Taxing land is a flawed idea. Land is only valuable if income is derived from it and we tax income and capital gains. Taxing someone for owning a field rather than any income he derives from that field strikes me as a hugely regressive step.
Perhaps a sensible option is to make income derived from rents liable to a higher rate than income derived from selling goods and services. Moving to a 30% flat tax rate for labour but with a higher rate for income derived from property and assets seems like a more reasonable system of taxation. The idle rich will be loosing more of their income to tax than the working rich or poor.
I’d feel this would make inheritance tax pointless. What with capital gains tax, and higher rates of income tax on income derived from wealth, any inherited wealth may well secure you a living, but you’ll be paying plenty of tax for the privilege.
Charles,
Taxing someone for owning a field should, as Jock says, be done on the basis of the potential of that field to earn. If no value is being taken from that field then the owner is depriving the community or other individuals a potential means by which to live. Also the activity of the rest of society will add value to that land and it could be then used as an asset by which to secure capital with which more earnings could be made. This is very different from taxing homes on the basis of the land on which they sit which would be regressive. Although there is a crossover by which the value of a home is also an asset that can be used to derive an income, also in that the ownership of land necessarily monopolises the use of that land even in the case of home ownership. The difference in home ownership is that the land will always be monopolised no matter who owns the house so taxation on the same basis as other land values would simply determine who lived where on the basis of their current income. Second homes and rental homes on the other hand are exactly equivalent to land wealth. Land is not only valuable if income is derived from it.
The hoarding of land can only occur at a direct cost to others as does the hoarding of any form of wealth as having sufficient wealth to potentially hoard resources is as detrimental to others as the actual hoarding of resources.
One solution to land value iniquity would be to stop allowing individuals to own land at all. Home owners and other land owners would only own the lease on the land and that lease would attract rental charges that could at the owners choice be paid on an ongoing basis or be retrospectively paid when the lease and home on top of it (which the homeowner would own) is sold on. This would discourage land owners from hoarding property only to let it stand fallow only serving the pocket of its owner.
A flat tax for labour presupposes that labour is the subject of tax. It isn’t. Taxing as a percentage is a tax on the differential that occurs as a result of people being paid differently for their labour. These differentials are determined by strength of bargaining power in the workplace. An hour of my time is worth more or less than an hour of yours because of the value attributed by the market to our respective product. Our hourly contribution should not be seen as in any way differently valuable as a cost to our self. Our labour then, should not be taxed, only the different values we receive in return for it.
Income is derived from the number of hours people work, and within an office you will find the people who work longer hours are paid more. Therefore income tax can be equated to a levy on time worked, for every hour worked, so many minutes are spent working not for your family but the government.
The principle of a flat tax (with a tax allowance) is that once you’ve earned enough to support yourself and your family everyone works the same length of time per hour for the government. Currently there is the perversity that as you increase your hours you increasingly work more for the government. That is unfair to those who are working and sacrificing more, and who are consequently adding more value to our economy and paying more in tax.
As for hoarding land and wealth, I disagree. Establishing how much income could be derived from land is best done by the free market and not bureaucracy. Anyone who think’s the Inland Revenue is better able to judge how to maximise money earned for an acre than the farmer or someone who comes along and buy’s the land in order to establish a business on it, belong’s in a socialist republic. In free markets it is trusted that people will look to enrich themselves in a process that enriches others. The belief that the state needs to constantly intervene in order to maximise economic growth is completely flawed, free market anarchy will always out manoeuvre bureaucracy to find the most efficient ways of wealth generation.
Charles,
Our government is not an individual. The money taken in tax by the government is used to do the things that we democratically will them to do for our families and others that the free market can not or will not do. We do not work ‘for’ the government. It never ceases to amaze me how often Liberal Democrats as liberals, who fundamentally believe in the autonomy and agency of the individual, repeatedly denounce other groups of individuals en masse by characterising and de-humanising them as drones in some ‘collective’ or ‘tribe’.
In your notional world where extra earnings are gained purely through longer work a flat tax would only help an office worker who could work long enough to enter a higher tax bracket. This simply does not exist as a reality.
All taxes are redistributive. Your flat tax, progressive taxes, VAT, capital gains, inheritance tax, all of them take money from individuals to pay for community priorities such as; police, armed forces, fire brigades, health systems, etc. As you would have it they all belong to socialist regimes. In effect you are right, all taxes are socialist to this extent we all live in socialist republics, so long as we live in systems that tax and redistribute democratically.
The trust in free markets for individuals to enrich themselves in such a way as to enrich others is demonstrated by history to be fantasy. Those in employment by others can only rely on this to happen when they have sufficient power to negotiate on a fair basis. History again shows that this can only be done collectively. Or, as Warren Buffet tells us, through class war. A just free market can only exist with strong trade unions.
As for your disagreement with my analysis of the hoarding of land and wealth, I am not sure what you are disagreeing with. Is it that you do not think this detrimental to others? If so then how about using your example of the individual who works longer and is then taxed more: Such an individual could be said to be hoarding employment opportunities. In a system such as ours where the free market has determined that it only requires 80-90% of the available workforce to actually be economically active, then such an individual is restricting the opportunity of those from the pool of un-utilised labour who wish to be economically active to do so. Don’t you think that it is fair that if the hoarding individual is taking the opportunity of the idle individual to provide for their family then they should also pay that individual’s share of the collective pot from which we communally fund social projects?
If your disagreement is something to do with your point about bureaucrats, state intervention and the inland revenue then that seems more like a Tea Party rant than something responding to anything that I said. Free market anarchy will as you say out manoeuvre bureaucracy in such circumstances but as the banking crisis shows it will not establish a just society. Is finding the most efficient method of wealth generation a sufficient or even a desirable goal for humanity?
JRC
“The money taken in tax by the government is used to do the things that we democratically will them to do for our families and others that the free market can not or will not do”
You should probably add “that we do not wish them to do”
“In your notional world where extra earnings are gained purely through longer work a flat tax would only help an office worker who could work long enough to enter a higher tax bracket. This simply does not exist as a reality.”
It depends on what you mean by purely, I have actually done this as I had a skill set that caused a lot of extra work over a period of time, it resulted in me being bumped up to the next tax bracket for that year (but I was probably to knackered to enjoy the extra income at the time I was earning it).
“Such an individual could be said to be hoarding employment opportunities. In a system such as ours where the free market has determined that it only requires 80-90% of the available workforce to actually be economically active, then such an individual is restricting the opportunity of those from the pool of un-utilised labour who wish to be economically active to do so”
I don’t think that this may always be the case. In your previous comments you talked about inate talents, so surely in some situations it wouldn’t restrict others unless they had that inate talent and had taken steps to put them selves in a position to benefit from them. I would expect such a scenario to be quite rare with our population levels, but not impossible.
“Is finding the most efficient method of wealth generation a sufficient or even a desirable goal for humanity?”
I don’t know if he’s your cup of tea, but have you ever read The Slog, often thought provoking:
http://hat4uk.wordpress.com/2011/08/26/from-the-archives-15-months-on-has-anything-changed-in-global-economics/
‘But despite disagreeing with you, I applaud you for having the courage to go against the consensus in the party. We are broad church, and welcome people with a wide range of opinions, and long may that remain so’
Are you really saying that? This is why both the Tories and Labour slam the LibDems because they say we are everything to everyone which of course means an absence of political philosophy and belief that is why they say they scorn the LibDems. I couldn’t stand Mrs Thatcher but at least you knew exactly what her beliefs were! She had a very specific set of political beliefs. In order to be a credible political party you need to have a very specific set of beliefs and ideas and not a nebulous ‘nice to everyone’ vacuous and vague set of ideas that they could include the far right to the far left as long as you embrace everyone and upset no one.
Yes it is to be applauded when people enter the lions’ den and go against a party’s consensus but that does not mean we then embrace those views. That is a recipe for muddle and would rightly justify contempt from both the other main parties.
Becky, from a purely technical perspective, IHT is what we jokingly refer to as a ‘voluntary tax, as it is paid by people who dislike their own children more than they dislike the taxman’. But there are many ways of legally avoiding this tax, or, depending on the size of the overall estate, reducing the potential liability very substantially. As has already been mentioned, the individual ‘Nil-Rate Band (NRB) is currently £325,000, but for married couples and Civil Partnerships, if the first to die has made no financial gifts during the previous 7 complete years prior to death, then the whole of their £325,000 NRB can be (claimed) by the estate of the surviving spouse (Civil Partner), or if gifts were made, then any unused element of that NRB can be claimed. Note that I say ‘claimed’, for the truth is, it does not automatically transfer. It is essential therefore that all paperwork relating to the estate of the first to decease as at date of death is retained as evidence of unused NRB, as solicitors are only obliged by law to retain such records for a minimum of 6 years. But let us not forget the annual ‘gift allowances’ that an individual is allowed to make from their estate during their lifetime, currently £3,000 per annum plus the previous year’s £3,000 annual allowance if that was not used in the previous year, (potentially £12,000 for a married couple/civil partnership) together with as many £250 per annum gifts as one chooses (i.e. one could stand on the street corner handing out as many £250 cash gifts to as many people/strangers as they like. Then there is the £10,000 once-off gift one can make to their child upon that child’s marriage (i.e. £10K ‘gifted’ by each parent). Then of course, there are ‘gifts’ to charities and to political parties which are not subject to IHT in addition to which there are perfectly legal IHT mitigating investment plans written within various Trust types designed to keep future capital growth outside of the estate and others, such as Discounted Gift Schemes which are designed primarily to provide the donor with a guaranteed future income whilst at the same time, immediately reducing the value of the estate for IHT purposes. And after all of that, if there is still a potential IHT liability on the residue, one can take out a Whole-of-Life insurance policy, written in Trust (thereby keeping it outside of the estate) so that upon death, the policy proceeds, designed to cover the anticipated IHT liability (which must be paid before the estate can be settled and distributed in accordance with the Donor’s Will), can be paid to the intended beneficiaries so that they then have the financial means with which to pay the IHT liability. (The foregoing must be viewed as ‘information’ and not be deemed as ‘financial advice’). At this point in time, it is possible to secure appropriate IHT-Planning advice, free of charge. However, in its’ infinite wisdom, the FSA has deemed that as from 01/01/2013, financial advisers will no longer be able to be remunerated by way of commission on completion of wealth/investment business, but will instead have to charge their clients a fee, whether or not at the end of the advice, the client proceeds with a business contract. Now, there is the iniquity, in that as a result of this lousy ruling, thousands of people out there will take the view that either they cannot afford to pay fees or they flatly refuse to pay such fees for financial advice and will thus be in danger of making very bad financial decisions for themselves to both their own detriment and that of their intended beneficiaries. It is for this reason that after over 36 years in the financial services industry, I am giving up my ‘wealth adviser’ licence at the end of this year.
I am, by the way, Chair of the Medway Liberal Democrats.
Kindest regards,
Tony
P.S. Remember, minds are like parachutes, they only work when they are open.