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