Cameron wrong: Millions not “at risk” from inheritance tax

David Cameron says that millions of families are "at risk" from inheritance tax. But economic theory shows that people do not pass on the full value of their assets.

David Cameron yesterday claimed that families owning properties worth more than £325,000 would be helped by his party’s inheritance tax policy. But leading economic theory shows that people are unlikely to pass on the full value of their assets today to their children.

On the Politics Show yesterday, David Cameron claimed that there were millions of people “at risk” from inheritance tax:

SOPEL: And inheritance tax even though only a couple of thousand estates, 2,000 people would be affected by it, that commitment, policy commitment remains?

CAMERON: We made a commitment for the Parliament. We said how we’re going to pay for it. And lets be clear, the current threshold for inheritance tax is £325,000. There are millions of people in our country who live in homes worth more than that who are at risk from inheritance tax. We think those people – people on middle incomes, people who’ve work hard in their lives – they should not [interruption]. It will be done in a Parliament as we’ve said.

Watch it:

But the life-cycle hypothesis or “intertemporal consumption” economic model predicts that individuals save while they work in order to finance consumption after they retire. This includes realising the value of their property before they die. In January, Fabian Society Research Director Tim Horton wrote to the Telegraph following similar remarks by the Tories:

“The Conservatives’ claim that four million face inheritance tax (report, December 29) is wrong.

“For most households, the value of wealth owned at death will be less than the value they currently hold. Many people use some of their wealth in older age – whether to pay for care or to do things in retirement. So, you cannot use the current distribution of wealth across all households to calculate who will face an inheritance tax liability in future.

“The reality is that only the richest two per cent will pay inheritance tax this year. Even in the boom years, only around five per cent of estates paid the tax.”

The Tory policy would deliver £540,000 savings to the country’s largest estates. The Mirror has shown that “David Cameron and Tory pals will make £7 million from inheritance tax changes if they get elected.” Eighteen members of the shadow cabinet are millionaires.

19 Responses to “Cameron wrong: Millions not “at risk” from inheritance tax”

  1. Mark

    It’s a policy designed to appeal to the marginal voter and one very close to Paul Dacre the Daily Mail. Let’s not forget that the moment Osborne announced this policy the Tory lead moved in the polls and Dacre had harsh words for Brown. It could be that this policy was behind Brown’s “bottling” of the election. In other words it’s proving very succesful for the Tories in electoral terms even if it is mistaken from a policy perspective.

  2. Will Straw

    Hi Mark,

    That was then. The idea that we would now reward the richest estates with a tax giveaway is very unpopular now.

    Cheers,

    Will

  3. Ben Cooper

    RT @leftfootfwd: Cameron is wrong to suggest that those with properties worth >£325k are "at risk" of inheritance tax //bit.ly/aaLxtC

  4. Chris Smith

    Cameron Wrong: 'millions' not at risk from Inheritance Tax – //tinyurl.com/y9w2ma5 #Conservatives

  5. Ben Cooper

    RT @thedancingflea: The latest chapter in the Tories' nonsense IHT policy from @leftfootfwd: //bit.ly/aaLxtC Populism over substance, tsk.

  6. John

    Will,

    They do however seem to be doing a good job of persuading people that this will affect more than just the richest few.

    John

  7. Mark

    Will, sadly the richest estates dodge IHT altogether thanks to clever tax advice, using trusts and parking the property offshore. See Zac Goldsmith etc. I suspect Cameron’s reluctant to ditch the policy because he’s desperate for Dacre’s support.

  8. Jay

    It may well be the case that “millions of people in our country … live in homes worth more than [£325,000]”.

    However, this fails to take into account any money owed on the property (only equity would be counted in assessing an estate for IHT purposes).

    It also ignores the fact – which I suspect Cameron is certainly aware of – that for married couples, or couples in a civil partnership, the nil-rate band (£325K) is now transferrable, so a joint estate would have to be worth over £650K before being caught.

    I am verk skeptical that there are “millions” in this position.

  9. Ben Cooper

    RT @leftfootfwd: David Cameron is wrong: Millions are not “at risk” from inheritance tax: //is.gd/7tsus

  10. Pava Angorae

    RT @leftfootfwd: David Cameron is wrong: Millions are not “at risk” from inheritance tax: //is.gd/7tsus

  11. Clifford Singer

    RT @leftfootfwd David Cameron is wrong: Millions are not “at risk” from inheritance tax: //is.gd/7tsus

  12. MyDavidCameron

    RT @OtherTPA RT @leftfootfwd Cameron is wrong: Millions are not “at risk” from inheritance tax //is.gd/7tsus

  13. Peter Boyle

    RT @OtherTPA RT @leftfootfwd Cameron is wrong: Millions are not “at risk” from inheritance tax //is.gd/7tsus

  14. Peter Boyle

    #torylies #toryspin RT @OtherTPA RT @leftfootfwd Cameron is wrong: Millions are not “at risk” from inheritance tax //is.gd/7tsus

  15. Gemma Gompertz

    RT @mydavidcameron: RT @OtherTPA RT @leftfootfwd Cameron is wrong: Millions are not “at risk” from inheritance tax //is.gd/7tsus

  16. Henry

    Dacre is paid very well, so that’s probably why he’s hostile to IHT.

    It was hilarious how steamed up the mainstream press got about the 50% tax rate (presumably most editors will have to pay it) – only to find it was wildly popular in spite of their ranting & raving.

  17. Affected

    My parents were greengrocers, worked 15 hours a day and managed to put together about £1.6m. They did that so my sister and I could have it better than they did, and were willing to sacrifice not seeing their kids as much to ensure that would happen. When I look at my friends and their childhoods it’s with envy because I hardly ever got to see my parents and experience the kinds of family bonding they got. But that’s my lot in life, c’est la vie.

    My parents paid taxes, never claimed benefits (NTTAWT) and are looking at an IHT bill of £400,000, even with the likely costs of retirement. £1.6m invested wisely can give them a fantastic standard of living without reducing the value of their estate, and incidentally, the house is all but paid off (so the whole “only equity is calculated” point is moot in our case). Trust me, my parents aren’t rich, we live in a standard four bedroom semi in Brent (not a plush mansion in Surrey) and my parents fanciest car has been a Toyota Avensis (oh the luxury).

    Even if we may statistically be in that “wealthiest 2%” bracket, it sure as hell hasn’t felt like it. Maybe the lesson is that we should’ve spent the money while it was coming in instead of saving it up for the future?

  18. Affected

    Incidentally, that £1.6m was earned over 40 working years, at an average of £40,000, a far cry from the £150,000 for the new 50% tax bracket. I don’t oppose the 50% tax bracket, as it actually does hit the wealthiest people in the country, but the idea that IHT only hits the wealthy is untrue. Like I said, we are anything but “wealthy”.

    (Edit: In my last comment when I said “we live” it was meant to say “we lived”, it’s my parents house, obviously, and I haven’t lived there since my student days, which is almost 8 years ago now. Sorry for any confusion.)

  19. drive a man wild

    To get complete Tax from people is not so easy!Need some awareness in people may be increased level of Tax payment.

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