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Comrade Kipper from up North asks me for my views on Inheritance Tax. No problems Mick: it should be abolished at once. Trust that is okay with you? Nope you wish me to explain? No problems.
First up this is a taxed on already taxed income. Somewhere along the line the capital one bequeaths was earned and tax was paid on it. Thus this is a double tax. Now Mick will no doubt raise the example of the Duke & Duchess of Snootyland whose family have not done an honest day’s work in hundreds of years. Such folk are a tiny minority of those who pay IHT but the left like to paint them as typical taxpayers. Moreover the landed gentry have been crucified by IHT for several generations so levying another round is, in this case, even more unfair than usual- this is income that is taxed many times over.
IHT means that if I earn a pound and spend in on hookers I am taxed once. If I earn a pound and invest it, I will be taxed twice. Given the fact that the British Government is bust do we wish to encourage saving so that we can support ourselves in times of need or discourage saving so folks have to cadge off the state when old or sick?
All taxes are distortive and IHT is no exception.
And thirdly IHT is a tax on the middle classes. Anyone owning a decent house in Southern England now falls into the IHT bracket. All that hard slog to buy a house and the Government erodes its real value via inflation and then steals a slug of the equity when you die. The really rich do not pay IHT. They set up trusts and engage in clever tax planning using legal wheezes like AIM shares, EIS etc to dodge IHT. Do you, for a second reckon that the estate of anyone in the Sunday Times rich list will suffer IHT?
Thus IHT is a tax that hits not the rich but the middle class – in that sense it is regressive. It is a tax that distorts behaviour encouraging consumption not saving. And above all it is unfair. Why penalise the prudent by taxing them twice?
I trust that answers the question from my lefty pal in the North. What would I do with IHT: Abolish it at once.
This article first appeared on TomWinnifrith.com – a blog that contains links to all of the writings of Tom Winnifrith on 10 UK and US websites on shares, business and investment plus a range of unique content on politics and things that really matter such as West Ham United. For an alert on all of Tom’s articles follow him on twitter @tomWinnifrith
