Rishi Sunak is reportedly considering softening inheritance tax ahead of the next election, also putting the mechanisms in place to abolish it entirely thereafter. For once, the Conservatives seem to be following their mission – to allow people to more of their own money.
According to the Tax Foundation, the UK has the 4th highest inheritance tax in the world currently. This policy stands in stark contrast to the ideals of aspiration and family values.
The government already exposes people to one of the highest post-war tax burdens throughout their lifetimes. According to the government, death isn’t even a good reason for some minor relief. Under the current policy, the money you have worked your life for, potentially 40 per cent of it, is taken in tax (those inheriting over £325,000). The dignity, pride, and peace of mind gained from earning money through hard work and good decision-making being swallowed into the endless dark hole of the public purse is tragic and reprehensible.
That peace of mind extends to protecting one’s family from financial shocks and emergencies. A form of protecting them is providing a head start for when you pass away. Inheritance tax undermines peoples’ ability to provide that protection. Fundamentally, someone should be allowed to assist their family even in death, otherwise money may as well be burnt and leaving behind funds for your family is the best way to help your family.
Inheritance Tax was designed to distribute funds from the super rich to the rest of society to tackle inequality. Whilst a principled idea, in reality, inheritance tax today has not translated into its original purpose. As people continue to become proportionally richer decade after decade through wage increases and ever-growing inflation pushing people into higher tax bands, more families will find themselves having to deal with inheritance tax. Therefore, this tax will be proportionately affecting middle class families a lot more than the super rich. Middle class families will find themselves inheriting a respectable sum of money, but in the vicinity of hundreds of thousands, rather than tens or hundreds of millions as the super rich do. Inheritance tax for the super rich is a drop in the ocean, but for the middle classes it is destitution to their life’s earnings.
Moreover, the super-rich end up dodging inheritance tax through a plethora of means: tax breaks/subsidies, trusts, agricultural relief and business property. Loopholes such as the annual exemption allows individuals to pay £3000 each tax year to avoid attracting inheritance tax. I have no quarrel with those who use legal loopholes to avoid inheritance tax, as it is the failure of lawmakers to close these loopholes. These individuals are merely responding rationally to the incentives presented to them.
Aside from the moral argument against the tax, inheritance tax contributes a minimal amount to the Treasury each year. A report by the Resolution Foundation found that inheritance tax contributes only 77p of every £100 of taxation each year. Is this number really worth the emotional damage that comes with 40 per cent of your earnings being seized by the State? I don’t think so. This lost income could be the difference in buying a house, as the housing crisis continues to increase prices over time, families will need to rely on every penny.
The Resolution Foundation proposed a £125,000 lifetime receipts tax allowance and a basic rate of 20 per cent (top rate of 30 per cent) for lifetime receipts over £500,000. While imperfect, this plan would at least boost revenue, with an estimated £11 billion it would bring into the Treasury rather than the £6 billion from the current inheritance tax. A respectable proposal although abolition of the tax entirely would remain the optimal option for the government to pursue.
All in all, I would be in favour of the abolition of inheritance tax, so I encourage Rishi Sunak to pursue the reduction and its eventual scrapping. Once we die, the clutches of the State are set to steal our money away and pour it into the endless void of the public finance system, this should not be allowed to continue.
