The only good tax is a death tax
Ross Clark says that the middle classes should not begrudge the Chancellor a slice of their inheritance
Of the many victims of Gordon Brown's great tax raids over the past seven years, few have been treated as courteously as the elderly gentlefolk who will be affected by the new levy on 'pre-owned assets'. The new tax, proposed in an Inland Revenue discussion document last December, will catch those who have sought to avoid inheritance tax by gifting their home to their children or putting their property into trust, but who continue to live in the building as if it were still theirs. From April next year, such people will find their homes treated by the Inland Revenue as a benefit in kind and taxed accordingly. The tax will also affect people who gift money to their children to help them buy a home but do so with the intention of themselves living in the property.
Although the Chancellor confirmed the new tax in last week's budget, he did so with important concessions. Among those upset by the new tax was Lord Camoys, who before budget day was telling journalists that it might force him to sell his ancient Oxfordshire pile, Stonor Park. Yet in the event Lord Camoys was spared by the Chancellor because he put his property into trust back in the 1970s; the new rule will apply only to gifts made since 1986. The Chancellor also decided to exempt from the tax parents who have helped their children buy a home and who later move into that property because of infirmity.
Much though one feels concerned for Lord Camoys's well-being — and perhaps even more so for his butler, whose job might have been in jeopardy — it is not entirely clear why the non-landed gentry among us ought to think the closure of a loophole in inheritance tax law a bad thing. No one likes paying tax and there are many of us who would be overjoyed to see every Equality Officer sacked and every Lesbian Awareness Week cancelled in order to reduce the national tax bill. But if the Chancellor needs to tax anything, I can't for the life of me understand why a tax on inheritance is especially iniquitous.
Mention inheritance tax in some quarters, however, and you can be sure that faces will turn a vivid shade of puce and cries of 'Bloody communists!' will fill the air. People who happily pay their car tax and who take positive pride in employing a plumber who issues proper VAT invoices will go to no end of complications to keep the taxman from their front door after their death. To tax the living is one thing, they seem to assert, but to tax the dead is indecent.
But why? If it is deemed acceptable to force workers to hand over a proportion of their income to the government, why should it be wrong to demand that inheritors hand over the same proportion of their windfall? As it happens, inheritors have to hand over much less of their spoils to the taxman than workers have to surrender of their earnings. There was a time when Labour governments sought to target the idle rich with malice: when Jim Callaghan was Chancellor in the late 1960s — according to the Guinness Book of Records — a special charge in addition to surtax on investment income took the effective top rate of income tax to 136 per cent. Yet for anyone to throw the accusation of bolshevism at the present government is absurd. Nowadays, it is earned income which bears a heftier penalty. Earn your way in life and you are stung not only for income tax but for National Insurance contributions of ten per cent. Live off a trust fund, on the other hand, and you pay just the income tax. In last week's budget, the Chancellor boasted about raising to £263,000 the threshold at which estates become liable to inheritance tax, Sell a business which you have created through your own efforts. on the other hand, and
you are liable to pay capital gains tax on all but £7,000 of the proceeds.
Moreover, Gordon Brown, like all recent chancellors, has shown a far greater tolerance of inheritance tax avoidance schemes than he has of any other form of avoidance. Never mind the loophole he has just closed; wealthy individuals with no previous background in agriculture will still be able to avoid inheritance tax by buying farms late in life and passing them to their children as if they were long-established family businesses. Given the subsidies available to farmers, not to mention the handouts available for planting trees on private land, this must qualify as one of the world's only tax avoidance schemes directly subsidised by taxpayers. Yet by contrast the Chancellor showed no mercy towards contract workers in the IT industry, whom he forced on to pay-as-you-earn schemes rather than allow them to enjoy the benefits of self-employment.
It is often argued that inheritance tax is 'double taxation': an individual has already paid tax on his earnings during his lifetime, so why should the state be allowed to help itself to a second slice of his wealth upon death? Yet the same could be said of the tax on the money I pay my plumber to mend the boiler. I have to pay income tax on it when I earn it; I have to pay VAT on it when I pay the plumber; the plumber has to pay income tax on it; then he has to pay VAT and excise duty when he takes what's left of it down the pub. All money is double-, triple-, quadruple-taxed as it passes through the economy, so why not pay tax on inheritance?
I say this not out of class envy. My parents own a home in Kent which, barring a family feud some time over the next 30 years, may one day be mine. I say it simply out of fairness. My jaw drops when I hear middle-class warriors bleating that Gordon Brown has raised the inheritance tax threshold in line with general inflation rather than house-price inflation, with the result that whereas ten years ago granny's house might have been passed to them in its entirety, now they must pay a small portion of its value to the taxman. The offspring of property owners have benefited hugely in recent years from house-price inflation, which the Chancellor has done nothing to control and everything to encourage. The victims of this house-price inflation are hard-working young people who hold down good jobs but still cannot afford more than a damp basement flat. Yet the inheritors of property still have the gall to make out that somehow they are the ones who have been hard done by.
The country would be a better place if taxpayers were trusted to spend a little more of their own money and the government were to spend a little less of it for them. But when it comes to cutting taxes, there are plenty of more deserving candidates than aristocrats who have just lost their inheritance tax loophole.
Previous page
