We all hate paying taxes, don’t we? All our hard-earned money going to scroungers and illegal immigrants, their flat screen TVs, those four-star hotels they check into just off the small boats at Dover…
All right, irony alert.
But the latest “initiative” from Rishi Sunak, flailing around to find some leverage, some desperate toehold to hang on to the cliff face that the polls suggest the Conservatives are plunging off, plummeting to the worst electoral defeat in more than a quarter of a century, is to scrap what is dubbed in the Sunday Times “the most hated tax in Britain”
Virtually no-one pays inheritance tax
This is Inheritance Tax. You pay it if your parents’ estate is valued at £500,000. If there are two of them, it’s £1 million. Roughly. It applies, according to the Government’s own statistics, to just 3.73% of deaths in the last year available, so virtually no one pays it.
It is not levied on people who are dead, because they are dead. They don’t pay taxes. It is levied on those who inherit a large amount of money from their estate, an unearned sum, as we shall see, on an estate swollen by the insane increase in property prices since their parents bought their houses. As we shall also see.
Needless to say, the highest regional contribution to Inheritance Tax is in the south east, where property prices are especially insane. The East of England region is not a long way behind, unsurprisingly.
Cynical government messaging
That increase in Inheritance Tax receipts, driven by the rise in the price of properties, which is where most people’s assets are locked up on death, is equally unsurprising. Sunak and his advisors believe that, even if almost no one pays that tax, it will provide what the pollsters call “cut-through” to persuade voters it is a tax cut that will make them better off.
Except that obviously it won’t.
It’s worth looking at this analysis of Inheritance Tax by the Resolution Foundation, the independent economic think tank. This says that:
1) It is wrongly seen as a tax on the dead, rather than the less deserving living.
2) Its flat 40% rate is seen as high, against the 20% paid on the lowest earners – except that as we have seen, almost no one pays it.
3) It is seen as “voluntary”, in that the rich don’t pay it.
Inheritance tax and wealth inequality
Now step back and look at the bigger picture. I have long believed that the lack of a tax on unearned inheritance is one of the biggest drivers of inequality, both historically and potentially, in this country. Suppose you are born, in the 1950s or 1960s, into a family that owns their own home. You are more likely to gain a better education, to assume a well-paid, middle class, professional job.
Then, as you acquire a substantial windfall from the death of your parents, likely around now if they bought in the great upsurge of property ownership just before you were being born, you get another kick upstairs. You and your siblings get to share a big six figure sum. Unearned. How could paying tax on that be unfair?
Born into a council house, manual labour job, and no silver spoon at the end of the rainbow. You and your dependants stay (relatively) poor. The middle classes get (relatively) richer.
Seems fair? Or we could always tax those undeserving middle classes.
A bit left wing? Oh, look, someone appears to agree with me.
Next, the pension triple lock. Oh, don’t start me off…