Inheritance tax is supposedly one of thE most hated taxes in the UK, even though only a tiny proportion of estates pay it. I offer some thoughts, and suggest that the time to debate is replacement has arrived:
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Great suggestion, makes more sense than the current system.
Seems a better system that the current one.
You give the example of CGT tax of the main residence upon death – presumably this would have to be introduced for the living as well as the dead (otherwise we would see a huge amount of “deathbed sales”). Whilst I don’t oppose elimination of “main residence CGT exemption” it would almost certainly be more unpopular that Inheritance Tax as it currently exists.
Could your proposal still work if “main residence CGT exemption” applied to the dead, too?
If taxing capital gains on main residences is central to the proposal then I fear that the opposition will be too strong.
I will elaborate
I did in The Joy of Tax
It’s time for a brave government to do such things
Charging capital gains on death is a good idea in principle. But if the idea is to somehow tax lifetime capital gain I’m less sure how easy it would be. Good idea if you can do it, but I’d imagine quite hard.
If someone bought a house in 1970 and dies today, calculating the capital gain should be quite easy. But what if they had a succession of houses? The capital gain on the last house, might be quite modest. Do you tax just that? Or do you try to tax earlier gains too? I don’t see that being easy.
An alternative would be to tax gifts – whether lifetime or on death – as the income of the recipient. I thought you might have found this idea attractive, but you don’t mention it, so I assume in fact you don’t.
What are the arguments against do you think?
I will redo a blog on this
Why do “we clearly need a Wealth Tax”?
Paying capital gains tax, including on death, makes eminent sense to me. But I don’t understand why we should pay a percentage of our savings in tax each year particularly when those savings may have lost value during the year.
If you have savings of over £1 million don’t you think you don’t owe something back?
Savings of £1m in sauna pension sounds a lot but have been accumulated over 30-40yrs and in retirement that might give an annuity of say 30k pa..doesn’t sound much now does it? And on death (death of spouse) the annuity goes to up in smoke…so taxing wealth at 1m probably isn’t fair.. incidentally if You want to tax retirement pots then you should also tax final salary schemes and back out the monetary worth and tax that
Meny people are transferring wealth within their lifetimes to avoid IHT. If the government replaces it with a wealth transfer tax it will still catch meny middle class families unless the transfer limit is above 2 million. But the limit won’t be that high. They are not helping people just trying to catch out more hardworking families whilst the rules will mean the rich still avoid paying tax.
That is a string of assertions without a shred of evidence to support any of them
Here’s a silly suggestion! If I get left £100 it’s income. If I inherit £1m (fat chance) it’s income. So tax it at the relevant rate!
A system that it is far easier to understand and easier to enforce.
(Won’t happen of course because it would hit those who make our laws most.)
Some make this suggestion
I think it should be taxed on the recipient
I am not sure that society is ready for it to be taxed as income as yet
I agree completely on taxing capital gains on housing on death, as it’s clearly unearned, but I fear that many people think of it as an entitlement, or as a kind of reward for being prudent, abstemious, responsible, etc. (All rubbish of course.) And I fear that the right wing media will just label it as another death tax.
Can you refer us to any surveys on what the public think about the idea?
Regards
Andrew Sayer
Tax Justice UK did recent surveys, but not on this issue as far as I am aware
I can’t see any justification for taxing an estate which has accumulated through the life of a deceased, except a pure opportunistic money grab by Government. Especially when most of any savings will have been already taxed in one way or another through VAT, income tax, stamp duty tc and other tax collecting schemes in operation. The contribution to Budget made by IHT should be replaced by marginal increases to the other tax collecting applications already being made through one’s life. Money received by an individual through life from whatever source should be taxed only once except unearned income which should be taxed at source.
We already practice multiple tax
And we do so with good reason: society cannot function without a strong tax base
What you’re actually saying is that you do not the wealthy To contribute to society
And that you want to crush the size of the state
So answer me a question, please: who do you want to die and who do you want to go uneducated? And what will you do without, the police, fire service or justice system?
Both inheritance tax and capital gains tax should be abolished. If capital gains tax is abolished the majority of people would sell excess assets and they would then have excess monies to spend on cars, holidays and other things which wouldbring in 20% vat to the government.They would help out their children who would have money to spend bringing in more revenues.The purchasers of thier properties would pay stamp duty plus vat to estate agents, soicitors, surveyors etc and then spend more money on improvements to the properties bringing in more revenue for the government in vat on materials and revenue from the trades involved.Also it would free up properties for prospective purchases.The same applies to inheritance tax. People are holding on to assets that they want to sell but they dont want to pay huge amounts of ccapital gains tax yet if they could sell the money distributed would quickly bring more revenue to the government and get the economy moving.
You honestly think sensible people don’t sell assets because they have to pay the current ridiculously low levels of CGT?
I’[m sorry – bit if you do you need to get out more
Or get a life
And what are these assets they want to sell?
Have you thought if all were sold their price may anyway collapse?
Who is CGT locked?? – large swathes of the buy to let property market
Removal of PPR seems eminently fair to me. It costs the seller nothing as it merely would recapture the inflationary gain. Would it also help to reduce house price inflation overall perhaps? Most people “reinvest” the gain they make in a new house when they move. If that gain is reduced, it’s less money to be pumped into the housing bubble, which would help a great many people
Precisely