Chancellor Sajid Javid tickled the Tory sweet spot by suggesting he might scrap Inheritance Tax altogether. But what would this mean for our economy and society?
Chancellor Sajid Javid tickled the Tory sweet spot by suggesting he might scrap Inheritance Tax altogether. But what would this mean for our economy and society?
At a fringe meeting at the Conservative Party Conference, Javid said that he could “see the argument” for scrapping the tax.
But others disagree.
Alfie Stirling, Head of Economics at New Economics Foundation told LFF:
“Rising wealth inequality, particularly when it is driven by excessive, unearned income, is extremely harmful to society. It reduces life opportunities for all outside of a select few, and it fundamentally undermines attempts to build a healthy economy and democracy.
“Wealth inequality and unearned income are already at dangerous levels in the UK, and the under taxation of inheritance is already an important contributing factor. Rather than making this problem even worse, politicians from all parties should be looking to tax unearned income on a similar basis to those who make a living from work.”
Meanwhile, others have argued for a change overall to the tax burden to ensure fairness throughout the lifetime.
Richard Murphy of Tax Justice UK has said:
“I understand his desire. Inheritance Tax has long outlived its usefulness. But, I would replace it with an effective tax system on wealth and not simply provide the annual give away of more than £5 billion to those who, by definition, are already wealthy that abolition would result in.”
Think tank IPPR has done some work on scrapping Income Tax, but for it to be replaced by a Liftime Gifts tax – to close some of the current loopholes.
This tax would be levied on gifts received by an individual above a lifetime allowance of £125,000. When this limit is reached, any income from gifts would be taxed annually at the same rate as income from labour under the income tax schedule.
Henry Parkes, IPPR Senior Economist working within its Centre for Economic Justice, said:
“Cuts to inheritance tax represent tax cuts for the very wealthy. In 2016-17, the average taxpaying estate had a net capital value of just under £1 million. So reducing the tax on these would represent a very poorly targeted tax cut, serving only to exacerbate existing wealth inequality and dent the public finances at a time when we need to pay for essential public services and reverse austerity.”
Emma Burnell is a freelance journalist and communications consultant.
To reach hundreds of thousands of new readers and to make the biggest impact we can in the next general election, we need to grow our donor base substantially.
That's why in 2024, we are seeking to generate 150 additional regular donors to support Left Foot Forward's work.
We still need another 124 people to donate to hit the target. You can help. Donate today.
3 Responses to “Reactions to Javid’s bid to scrap Inheritance Tax”
Patrick Newman
I’m all for replacing IHT with a wealth tax levied annually at a rate able to generate magnitudes more than IHT. Alternatively, instead of the standard 40% band it like income tax – initial rate at 20% increasing to 70% with a tax-exempt level equivalent to the tax-free income allowance?
Dave Roberts
The vast majority of those who will benefit from this are homeowners who want to pass wealth down to their offspring. It is a vote winner and will attract people who might have thought of voting Lib Dem. All in all the electoral scene isn’t looking good for Labour. With the Tories in an overall lead the anti Tory vote looks like it’s going three ways. The Brexit vote on the other hand will only go in one direction, Tory.
Gary
Fortunately this is really a non-story. Javid saying ‘I can see your point’ is far from him agreeing with it, never mind BACKING it.
And the idea of moving to a ‘Lifetime Gift Tax’ IS good but inherently unworkable. It imagines a world where the rich firstly, declare their taxable income properly and secondly, don’t attempt to find loopholes as simple as having their loved ones ‘buy’ assets at knockdown rates to avoid being a taxable event. This is just off the top of my head, I’m sure that after another few minutes I could come up with another few amusing wheezes to get the rich off with paying THIS tax as well.
What must be remembered is that the bulk of tax revenue in this country comes from PAYE Tax/NIC from employees paying the lower tax. Higher tax, SA, COTAX etc are, relatively speaking, minimal. the more money you have, the less you pay as a percentage (not just because of the NIC UEL either!) Clever accountants, schemes to avoid tax that ‘aren’t actually illegal’ (yet) and flat out fraud by those earning so much they don’t need to do it all contribute to the burden placed on the lower paid and the forced austerity on society’s most vulnerable. But, you may say, what about Working Tax Credit (WTC)?? WTC is not a boost or a leg up for lower paid workers, it DOESN’T help single mums and dads, low paid workers, part timers or any other worker. WTC is for employers. It means employers can pay their workers less than the market might otherwise demand. It ensures that the sting is taken out of even collective bargaining as even the poorest paid can have a safety net. What SHOULD happen is a market where employers HAVE to use decent wages as a way to compete for employees, they don’t. Wages are kept down artificially with this subsidy for bad employers. On top of that the WTC (and CTC too) system was designed by the Nudge Unit (or whatever they actually call themselves) It’s so complicated that accountants can’t get to grips with it, it uses tricky language to mislead applicants and ensure they end up overpaid through no fault of their own and then don’t dispute it (that’s Tax Credit talk for an appeal against your overpayment) If you use the WRONG terminology it ensures you run out of time to disagree about it and end up having to repay money you don’t owe. It’s made deliberately unclear and even the advertising and call centre will get a couple of basic pieces of advice wrong too – again leading to overpayments. All of this leads to applicants getting fed up and not applying. Sounds like a real Tory wheeze? Nope, this one’s on Labour. Of course the Tories picked up the baton and went with Universal Credit, just as bad, essentially extending the misery to others.
Many may think these unintended consequences, they’re NOT. They were well warned in advance by HMRC and went ahead anyway. Governments ONLY act deliberately. They care about the next vote in the house and the next GE, end of.
If ANY party thinks they can replace the Inheritance Tax and replace it with something that a) sounds good and b) doesn’t only NOT hurt their donors but actually benefits them then they will act swiftly to implement it. The only thing stopping them is being torn apart in the eyes of their own voters..