Is Inheritance tax an unjust tax...?

trailingspouse

Let's take it one step at a time. Egbert has £100m and a tax bill of £99m. The only way he can pay the tax is by selling the property. Who's going to buy it? You've taxed everyone, no-one has assets of more than £1m, no-one can afford £100m. Egbert is bankrupted, and the government doesn't get any tax at all. Slam dunk.


I also think it's quite cute that you think £1m of assets is a lot.

chrismac1

£1m has been chosen because at £25,000 per year, which is the median UK wage, that will last 40 years.


You are right that in the short term there will be a fall in the value of properties worth more than £1m. I see that as a further benefit of this scheme, many people currently priced out of the UK property market will be priced back in.


Ultimately this scheme will result in the biggest transfer of UK land since the high death duties of the early 1900s:


FROM people who can just sit on their fat !!!!!! for their entire lives living off rents


TO people who get off their !!!!!! and work hard enough during their lifetimes to be able to pay for expensive property.


So ultimately this change transfers property out of the hands of the Duke of Westminster and his ilk, into the hands of Alan Sugar and his ilk. Whether you see that as a step forward is a political judgement and not an economic one.

Aegis

It's not an unjust concept, it's just very poorly implemented, as mentioned by others here. For a family living in London with a high-value house but little else (I've seen a few such families in recent years), inheritance tax is horrific, as it's very difficult indeed to sell part of a house to pay IHT. Yes, loans are available and yes, you can pay over time when it's property, but it costs the recipients a lot of money and they end up handing over a sizeable portion of their inheritance in the form of tax. Arguably this is the correct outcome where the wealth is a high-value asset, but the problem comes from the distinction between this and, say...


Another family might have several properties, investment portfolios galore, etc. With the added liquidity comes additional ability to avoid this tax, so they might make extensive use of gifting, lending, trusts, etc to bring the tax down from 40% on the majority to a small fraction of that - under 10% is certainly possible with prior planning. Proportionally, the richer families end up paying less and less family wealth to IHT, which is the exact opposite of how this is supposed to work.


I think I'd agree with the idea of combining capital gains and inheritance taxes (which I think is what chrismac is steering towards), but I'd disagree with setting the bar at £1 million and taxing the excess at 100%. There would also need to be some holdover-type allowances needed for things like the hotel business mentioned earlier.

getmore4less

chrismac1 wrote: »

Then Joe Bloggs' inheritors can either pay the tax or not. If they can they run the hotel. If not they flog it - or the state does in the event they don't - and if it is a viable business, you'd expect the new owners to carry on running it.


I reckon that within 100 years of this 100% tax rate the big estates which just pass down the generations would be much more widely spread. I can't imagine that the Duke of Westminster, for example, would own half of central London unless he just happened to invent the next Iphone.

Don't work like that, if you redistributed all the land equally today within a generation it would be back in the hands of the few.
Start with the low life and disadvantaged they give up their bit for the next fix, or food....

You will have distroyed farming as no one can own enough land to make it viable.

You also seem to have forgotten that the freehold ownership is not the full story as most of the beneficial use of that land has been sold on already in the form of leases.

Any attempt to stop the accumulation of relative weath is very distructive.

chrismac1

I live in Cumbria and my brother in law is a farmer, so forgive me if I claim to know something about farming.


The vast majority of farms around here - after taking account of the mortgages - are worth less than a £1m. Certainly if you were to set the bar at £2m instead of £1m, very few farmers who actually work their land - as opposed to hiring a load of farmhands to work it for them - would pay any of this tax at all.


There would of course be very dramatic effects in farming. Very large agricultural landowners would face sizeable IHT bills unless they were heavily mortgaged.


Whether you see this as bad or good is not an economic judgement, again it is a political one.

getmore4less

Spidernick wrote: »

That would often leave a little old lady (or man, i.e. the surviving spouse) having to sell the family home and move out to pay an IHT bill and so is a political non-starter (could you imagine the headlines in the Mail?!).

It's worse than that if they die young there will be kids homeless.

The wealth loophole closing can have further consequences, people won't be able to have pension funds with spouse/kids pensions.

getmore4less

chrismac1 wrote: »

I live in Cumbria and my brother in law is a farmer, so forgive me if I claim to know something about farming.


The vast majority of farms around here - after taking account of the mortgages - are worth less than a £1m. Certainly if you were to set the bar at £2m instead of £1m, very few farmers who actually work their land - as opposed to hiring a load of farmhands to work it for them - would pay any of this tax at all.


There would of course be very dramatic effects in farming. Very large agricultural landowners would face sizeable IHT bills unless they were heavily mortgaged.


Whether you see this as bad or good is not an economic judgement, again it is a political one.

Wow we are up to £2m already, to save the farmers that work their land, all the big ones that need to employ people have to change.
By the time you are done agriculture will be back to the days when crofting smallholdings was popular.

Same for other business that employ people and have grown big through scaling doomed to be asset stripped by tax on the death of the owner(s).

The only organisation left that can hold assets will be the government nationalisation of everything will be the only thing left.