Emily Thornberry on abolishing inheritance tax
Following Stephen Byers’ call to abolish inheritance tax, and subsequent press releases where he justified it with reference to certain marginal seats Labour might lose without just such policies, I’ve received the following from Emily Thornberry, the MP for one of the seats he singled out. Good for her, eh?
No one likes paying tax and I’m sure there are a few people who would vote for me if I said let’s abolish inheritance tax. But I’m not prepared to chase a few votes by pretending to be a Tory - I’m Labour and abolishing inheritance tax isn’t. Most people in Islington realise we’re one community here and the only way to tackle problems is to share our resources and stick together.
Stephen Byers doesn’t understand the real Islington if he thinks abolishing inheritance tax is what people want. Islington is not all leafy lanes and coffee shops - we’ve got 13,000 families on the waiting list for social housing and over 40% of Islington primary school children get free school meals. If Mr Byers came to one of my surgeries many of the stories would break his heart.
I’d be happy to introduce him to people on estates across Islington who would remind him in no uncertain terms that only a Government based on Labour values would be investing £157m in improving their homes at the moment. We’ve achieved a lot, and we need more real Labour policies in the future, not a tax break for the wealthy.
Well said, he should go and see some of the improvements being made with that money.
good for her.
I’m not at all a fan of IHT - the idea that gifts from living people are tax-free, but gifts from dead people are taxable is, frankly, strange.
The question should be the following:
The government needs to raise a certain amount of money from taxation in order to fund its operations. What is the most efficient and most equitable way of raising that money?
There are basically three different forms of tax - taxes on spending (VAT), taxes on income (income tax, NI) and taxes on wealth.
IHT and the council tax are, more or less, rather bad attempts at a tax on wealth. Why not replace them with a simple wealth tax. Everybody pays 0.5% of his wealth in tax every year. No thresholds, no exemptions.
Wealthy families can’t avoid this by passing property down to the younger members in advance of death, or by putting anything in trust. The amount of tax a family pays is not affected by the order in which its members die, and people are not presented with lots of paperwork and a big bill at an emotionally distressing time.
Ms Thornberry is discussing how much income the government should seek to raise through taxation and how that income should be spent. One can, surely, want to spend money on improving homes in Islington and also want to raise that money in the most equitable fashion.
Tax break for the wealthy? Are you really living on the same planet? We are an extremely hard working, working class family - no car, no holidays (ever!), but our bills are paid and we happen to own our house. I will have to pay Inheritance Tax on it, even though we have paid every conceivable tax thrown at us by various money grabbing governments, who invariably waste plenty through corruption (you only have to see the current investigation going on, yet again, at Labour run Hackney council to see that).
You don’t pay inheritance tax until your home is worth more than £275,000, rising to above £300,000 shortly as I recall. Very few people on the estate I represent will ever have to pay it - because they live in social rented property, or because the houses they own through right-to-buy will never be worth that much. The vast majority of people in the country will never have to pay it. Abolishing inheritance tax is a cause of the wealthy, and yes, you and I do live on different planets if you think it’s not. But then, you don’t really sound like a Labour voter…
The wealthy? There’s not a house in the street I grew up in that’s worth less than £275,000. This is in a far-from-fancy residential area in the Isle of Wight, historically a less-developed area of the South. My elderly parents who like many of their neighbours are on fixed incomes, are not ‘wealthy’. To describe them as such is to do violence to the language. To the extent they have assets, it’s through hard work and prudence (which means something altogether different from Gordon Brown’s formulation). And it’s not your ‘home’ that is valued for the purposes of inheritance tax, it’s your total assets. So an average house, £250K, say, plus modest assets of £50,000, and you’re on the threshold.
Inheritance tax is a mean-spirited, epater-les-bourgeoises tax with no merits whatever. It distorts the whole landscape of saving, investment and consumption, and is borne exclusively by the middle classes (truly wealthy people don’t pay it, as they can afford expensive estate planning). If one factored in the opportunity cost of this distorted market, I’d wager the tax ended up costing more than it raised.
Technical nit: you pay IHT if the value of your estate is above £275,000 or whatever - not just your home.
This doesn’t, of course, alter the fact that people who have estates which are liable for IHT aren’t poor. I would dispute the claim that such a person is automatically wealthy - a frugal person on average wages could easily have acquired a house that was worth that much - but they certainly can’t be said to be poor.
I reiterate my statement that I’m not at all a fan of IHT - the idea that gifts from living people are tax-free, but gifts from dead people are taxable is, frankly, strange. I will grant that it is a strangeness that only applies to the comfortably-off, and so that rectifying that strangeness might not excite the average Labour activist. Nevertheless, I would hope that everyone could agree that it was a strangeness that should be rectified, even if it wasn’t a high priority.
All taxes are unpopular but we all know that we have to pay tax. What i think is unfair is that IHT is levied at 40% regardless of the tax position of the receipent. Surely if you are not paying tax or paying tax at 20% that should be the rate you pay when you actually inherit rather than being paid as is on 40% of the value of the estate over £285k.
All this encourages is for people to use the varrious avoidance means like IHT wills to mimimise what they will have to pay. With carefull planning you can pay nothing!
So a lower fairer tax should be considered.
Adrian
http://WWW.boon-solutions.com
Specialist Will Writter
My belief is that Inheritance tax is unfair. I think it would be fairer if the person receiving the bequest were to have to pay some form of income tax based on there income when they receive the bequest. This way poorer people would not end up paying the same as richer people.
I run a will writing company and see many clients who just can not believe that they will pay 40% on everything above £285k when they die. Many of them get us to write IHT wills to reduce this burden and even take out additional insurance to pay the IHT. Surely this just complicates things when we already have a tax system in place. I am sure more use could be made of income tax and capital gains tax, this would simplify sorting out estates when someone has died and relieve the burden on grieving relatives.
Until such changes are made I am sure we will continue to see a big growth in trust and other avoidance measure being used. Over time these will be taxed more and more and further complicate our tax system, but if things like IHT trust reduce the tax burden I am sure people will want to use them.
Adrian
We are a firm of Estate Planners and see a large number of clients a year; although people are becoming more aware of inheritance tax the vast majority are not aware enough.
When we sit down with clients, I don’t mean mega wealthy people, I mean people like your mum and dad who have worked all of their lives, they maybe own a typical house in the south east of England, have a bit of savings, potentially some life insurance, these people are amazed that their families will have to pay 40% on everything in thier estate when they die.
The government have a right to raise taxes, they also have duty to educate people on how they will do this. When it comes to Inheritance tax not enough people no how it will impact their families, more should be done to educate people.
For the large majority of people, they could plan to avoid Inheritance Tax or at very least plan how their families could meet this big bill. But this can only be done if people truly understand how IHT works, they also need to understand home much they are actually worth, again many clients just don’t understand how much they are worth.
Try this exercise add up the value of your house, minus any mortgage outstanding, add on any life insurance your have, include in death in service benefit if you are employed, add in the value of shares, ISA, Peps Unit Trusts, Bonds, also add on any death benefit you might have in association with a pension, if you have any other property add this on, even if it is not in this country. Finally add on any cash or other savings you have together with the value of any other big assets you might own like cars, boats etc.
When you get a total figure take off £285,000 then multiply what is left by 0.4.
Whatever figure you have is what the government will expect before any of your assets are transferred to anyone. This figure has to be paid within six months of your death. For many families this means getting expensive bridging loans to pay the tax bill and then selling off family assets that they might have wanted to keep.
This can be frightening!
Some exceptions exist, as an example if you are passing assets to a spouse there is a thing called spousal exemption, but this is not a tax efficient way of bequeathing things for the benefit of your spouse. I am conscious that I am waffling on more details can be found on our website http://www.nls-berks.com.
I would suggest you educate yourself until the government either scrap this tax or spend some of the tax collected on educating you.
If you need help please feel free to give us a call, we offer a free initial consultation where we will help you calculate your IHT liability if you have not followed my waffling.
Only 6% of estates pay IHT as many peoples wealth reduces by the time they die (paying for care is one reason!). Therefore it is not right to automatically think you will have to pay it. There are reliefs and remember it is only on the value ofthe estate above 285k. Therefore if the estate is worth 300k, the tax would potentially be just 6k, still leaving the beneficiaries a healthy 294k tax free.
The Nil Rate Band threshold has now gone up to £300k from April 07. I think the 6% figure sounds very low, HBOS stated in the 2003/4 year an additional 25% of household will now paying Inheritance Tax. As an Will Writing and Estate Planning company we do not see many people who will not leave an Inheritance Tax liability for their family when they die. Any tax that is legally avoidable is not worth having and believe me Inheritance Tax is legally avoidable we help people to plan to avoid it all the time. As for reducing the value of an estate due to care costs I agree this does happen but being forced to sell the family home to pay for care costs should be criminal. I personally have seen several elderly people who this has happend to and I believe it has bee a large contributoray factor in their early deaths, as it causes a great deal of stress and worry. Again measures can be pit in place to help protect assets from the ravages of care costs by effective estate planning.
If we are going to have taxes why not be totally up front and raise the Income tax percentage and do away with Inheritance tax, at least that way everyone can see what tax they are paying.
Right - 6% of estates, which actually means more like 10 - 12% of families (most people are married, and pass their estates to their spouse free of IHT when the first one dies).
I still find it a peculiar tax - what justification can be made for differentiating between gifts by living people and gifts by dead people?
“If we are going to have taxes why not be totally up front and raise the Income tax percentage and do away with Inheritance tax, at least that way everyone can see what tax they are paying. ”
Because taking money people haven’t earned away from them when they don’t need it is better than taking money people have earned away from them when they do need it?
jdc:
“Money people haven’t earned”?
Most inheritances have been earned - by the recently deceased.
“When they don’t need it”?
IHT has nothing to do with whether the recipients of the inheritance need it or not. The estate pays the same tax regardless of the financial position of the beneficiaries.
Now, if we were to tax bequests as income of the beneficiary, your argument might start to make sense. Of course, we’d also have to tax gifts from living people as income of the giftee, which I confidently predict would soon win a prize as the most evaded tax in history.
“If we are going to have taxes why not…”
Hold on, are you suggesting there’s an option where we don’t have any taxes?
Sam - Most inheritances might have been “earned” by the recently deceased, but most of the largest inheritances have been passed down from generation to generation for longer than anyone alive can remember. The recipients never knew the people who “earned” the money. Besides, the idea that vast inheritances have been “earned” is as questionable as the idea that vast salaries have been “earned”. A fat cat doesn’t “earn” more than a learning assistant, they’re just paid more.
Why have inheritance tax? Because it ensures more of a level playing field, and raises money for our NHS at the same time. All forms of wealth need to be taxed, not just income. (And you can guarantee that if inheritance tax was abolished, it wouldn’t be the rich paying more in income tax to make up for it, it’d be ordinary people paying more.)
hold on, I just read the beginning of these comments; clearly not worth arguing with this person.
Property values are not “earned” by the occupiers of that property. Their locational value is created by others, the community around a site that makes it popular, often because of infrastructure expenditure. They increase because others need to use the location on which the current occupier has a monopoly.
So yes, do away with IHT - most other assets that one might have accumulated are, after all, wealth producing. But property values represent a transfer from tax payers, and especially those without real estate, to those with. Pay for abolishing IHT, and Stamp Duty, with Land Value Tax throughout the period a person occupies that location.
“Now, if we were to tax bequests as income of the beneficiary, your argument might start to make sense”
Happy to do that.
Whilst I understand the sentiment to “do away” with IHT and would certainly support it, it is here to stay at the moment. I cannot see any of the political parties totally abolishing it at the moment. They may raise the threshold, but I guess even that would be a blessing.