Recent increases in house prices have seen a sharp rise in the number of houses liable to inheritance tax.
Inheritance tax is supposed to hit hard at the very wealthy in the UK. At 40% for everything in an estate worth more than £263,000 I would suggest it is highly likely that the very rich take great care to ensure that such a high proportion of their estate does not go into the government’s pockets.
For someone who dies with a house worth more than £1 million (and as we have been told recently this is no longer solely a London and South East England phenomenon) there is a tax bill of more than £300,000.
The very wealthy have been using gifts, trusts, offshore companies and life insurances to keep the value of estates in the family. The total sum of money collected by the Chancellor in the 2003-4 tax year has been identified by the Inland Revenue as £2.7 billion, not an inconsiderable sum but still less than 1% of the total collected by the Revenue.
Now that many more middle-income earning families are facing being caught in the Inheritance Tax net, and without any experience of tax dodging, these law-abiding citizens are choosing to spend, spend, and spend the fruits of their lifelong work while the going is good.
In 1997 there was only one town in the UK (Gerrards Cross in Buckinghamshire as it happens), which had an average house price higher than the inheritance tax threshold which then stood at £210,000. Since then, the inheritance tax threshold has increased by 22% to £263,000 while house prices have risen by an average of more than 130 per cent.
Rising house prices is good news for all who bought their homes many years ago but I do not know anyone who now wishes to give 40% of their estate back to the government unless they secretly disliked their associates and relatives more than they disliked the taxman.
Once again the essence here is one of choice. I have never for one second thought it inappropriate for someone to leave their money to an animal charity or much-loved pet for use through its lifetime. Eccentric perhaps but why not if you want to? Money properly earned is done so for the long term. Nothing is more significant to many parents from all income levels that they leave “something for the kids”. In past years low income families strove to make sure that their funerals were paid for well before their death – “all squared up with the Co-op” as they would say.
Today ours is a property owning society and Inheritance Tax needs not only to be reviewed but, I believe, abolished, looking forward into the 21st century. Surely we do not want to encourage tax avoidance amongst our middle-income earners who have after all paid income tax during their lifetime on the money they leave? And we have already achieved the sad distortion of encouraging consumption over savings with the disappointing decline in our pensions industry.
Now we can show that the reward for effort must have a higher value than simply encouraging our successful older people to go off with their properly achieved gains to live in another country or take endless cruises around the world. Our economy will be all the more likely to thrive for having all this money ploughed back into our economy by the relatives and friends whom the dead would like, in their will, to receive their inheritance.
I can think of nothing more offensive to those who have worked and given great service to this country than for a large proportion of their hard-earned money to be confiscated by the government at the end of their lives.