Matthew Elliott and James Frayne: "Abolish Inheritance Tax"

Matthew Elliott is Chief Executive of the TaxPayers' Alliance and James Frayne is Campaign Director

> Policy summary

The abolition of inheritance tax.

> Policy explanation

Inheritance tax is currently levied at a massive 40 percent on estates worth more than £285,000.  This currently affects around 1.5 million households. However, the Halifax have projected that by 2020 the tax will affect 4.2million households if the threshold continues to rise very slowly at a time when house prices are rising steadily.  The tax raises around £3.6 billion a year.

We believe that inheritance tax should be abolished.  It is not simply a tax on the rich (who can and do employ expensive accountants to come up with ways of dodging it) but affects ordinary families.  It is immoral because it forces people to pay tax on their possessions, having already paid huge amounts of tax throughout their lives.

> Political risks and opportunities

Contrary to what many in Westminster seem to believe, inheritance tax is an issue that concerns ordinary people across the country.  The polls clearly show that people are opposed to it.  According to a Populus poll for the BBC in March, people disagreed by 73-25 percent that inheritance tax was a "fair way" for the Government to raise money.  The poll also revealed that over 40 percent of those questioned had had to take inheritance tax into account recently in their own lives.  This reflects two things above all:

(a) people understand the obvious immorality of what amounts to "double taxation"; and
(b) it is not seen as a "tax cut for the rich" - ordinary people are being hit by it.

A commitment to getting rid of inheritance tax would show the Party understood the concerns of ordinary middle class families and that it its agenda was driven by wanting to make life "fair" for people. The abolition of inheritance tax should form part of a wider campaign to reduce the tax burden on families - a campaign which should (like the Lib Dems) commit to changing the thresholds at which the various tax rates kick in, and reducing the basic rate of tax.

Of course there is always some "risk" in announcing any policy.  Here the risk lies in what message abolishing inheritance tax says about the Party's priorities at a time when the Party has been actively and explicitly briefing that it was moving away from tax as an issue because it does not fit the new "brand".  It will require a significant change in the tone of the Party's campaigning and a clear briefing that the Party sees the issue of tax as an integral part of its compassionate conservative agenda - for
example, because "reducing the tax burden on ordinary families will make life easier for them and give them the money to spend on their own priorities".  On the issue of inheritance tax specifically, whilst the public are opposed to it anyway, it would be better if, like in the US, the tax became publicly known as the death tax (which is essentially what it is).

> Questions for ConservativeHome readers

• How should the issue of tax be brought back into the Conservative "brand" given the Party's clear briefing that it has been excluded?
• What other high-profile tax cuts should be announced at the same time to minimise the ability of the Government to say it will mostly affect Southern voters?
• Would it be better to begin the process of abolition by raising the threshold massively?

> Costs

It is always dangerous to get into the game of "costing" tax cuts because tax cuts have "dynamic effects" - they create a "rising tide" which boosts the economy as a whole and leads to revenues holding up (look at Australia, Ireland, the US and elsewhere).  However, on a "static" analysis, the
abolition of inheritance tax would "cost" £3.6 billion - the amount the tax currently raises.  Given that the European Central Bank estimates that the British Government wastes over £80 billion a year, the figure is relatively trivial.

Comments

[mark curtis]

This tax was only introduced to break up the large estates owned by the aristocrasy & now people in some parts of the country are paying it on ex-council housing stock! Any secondary tax is inherently unfair & a discouragement to hard work & frugality. We should not be forgetting about the other side of the balance sheet & talking about how to reduce the size of Government. Most of the growth under Bair has been in sectors where the private sector could & would do a better job. So let's take the State out of our everyday lives.

[Adam]

Gildas - Laffer has not been proved right by Bush's tax cuts, as the US still has a massive fiscal deficit, and is still predicted to have a massive fiscal deficit. That the prediction isn't quite as enormous as it was 6 months ago is hardly cause for massive celebration.

[Martin Thornhill]

I am astonished and disappointed by the economic illiteracy inherent in some of the comments to this blog.

The most disturbing comments are those who consider the removal of a capital tax to be an impediment to social mobility. The emotive conclusion would appear to be that if we are all equally poor, then we should all be happy and productive. Er... proof, please?

The fact that we would all then be in a consumer-led, subsistence-based economy without any reliable base for future investments appears not to matter to such writers. Money clearly grows on trees, just like spaghetti.

Other writers don't seem capable of figuring out that inheritence tax is double-taxation. For clarity, IHT the taxation of accumulated wealth *after* tax was taken from its income, q.e.d. income is taxed twice: once at source; a second time much later on, i.e. at death. Who doesn't understand this?

Beyond economic illiteracy, other writers take the population for moronic fools ("we need to appeal to middle-ground voters"). OK, so the Conservatives are all about being as ignorant and innumerate as Joe Public? Excuse me, what would happen if our courts of law did that? Exactly. So why put up with this sort of "need to appeal" in an election? Labour does this already, we don't need another party doing it too.

Bottom-line: taxing capital sacrifices tomorrow's income, because government only ever wastes tax. No future growth can ever come from British public spending.

Scrap inheritance tax. And while we're at it, scrap capital gains tax as well. CGT has always costed more to administer than the receipts it collects.

Is this Conservativehome, or OldLabourHome?

[Steve]

Well said Martin. Three cheers!

[Simon Perry]

You think that inheritance tax is unfair? Of course it’s unfair – all tax is unfair; your money is being taken by force. But even if we reduce our government expenditure to the bare minimum: defence and police, we'd still need tax. The only choice really is how we pay it.

Given the choice, I would prefer to pay my taxes after I'm dead.

In almost every other form of tax, we are taxing the earned:- taxing the very thing that benefits our economy and keeps the quality of British life as high as it is. Surely it makes more sense to tax financial transactions that have no benefit to the UK as a whole.

The argument that inheritance tax is a second tax on the same money just doesn’t stand up. It’s true – but it’s also true for most tax. Income, inheritance, VAT and NI all tax the same money over and over as it moves from person to person. The only difference with inheritance tax is that the money wasn’t earned: the person receiving the money hasn’t needed to give anything in return.

Income tax is akin to slavery: the benefits of your labour are being taken by force. Tax on inheritance is akin to theft. Which is worse?

[Deputy Editor]

Radio 4 Talking Politics is currently looking at the arguments for abolishing IHT. They introduced it by talking about Built to Last and how it didn't specify which taxes were unfair.

They've interviewed a guy from the US about the debate over there - such as how they call it a death tax and how close they are to having enough elected supporters to cause a filibuster.

Now talking to Daniel Finkelstein and Alister Heath and John Rentoul.

You should be able to re-listen to this debate via the website.

[Yet Another Anon]

Stephen Byers as well has come around to believing it should be scrapped, but such proposals have been rubbished by the Treasury and by the dti.

It is probably as well to leave it in place until the public finances can be brought back into surplus and then scrap it, the focus at the moment should be on reducing Income Tax and Capital Gains Tax and Corporation Tax rates and raising the threshold for them and extending VAT, public spending should also be cut back but equally reducing PSBR and moving to a situation of repaying National Debt should be a major priority.

IHT doesn't raise much and increasingly is falling on Middle Income households rather than the Super Rich it was intended to fall on as many of the very rich can afford to pay accountants to deal with it, also money paid out from Estates is normally still subject to Income Tax anyway as indeed Stephen Byers pointed out.

[Paul Charlson]

I think this would be a popular policy with voters.
It is a nasty tax,people work all their lives to build up wealth. This is already taxed more than adequately. They die and then pay all over again.
It now affects many middle income families the sort that are swing voters.

It has to worth a punt and would top my list of cuts. The cost is no currently huge and the impact on voter behaviour potentially significant

However in the longer term this will be an increasing earner for the exchequer because of rising house prices and the switch to property ownership as a pension option

[Paul Charlson]

I did not answer the questions!
1.It is difficult to bring it into the "brand" if we cannot mention tax. This is silly of course tax is always on the agenda. My feeling is this should be our only suggested tax cut at the election and could be counterbalanced by showing where this revenue could be raised elsewhere.
2. I live in the North and we are not all paupers past Watford Gap! Let the Government say it, Yorkshire folk and indeed the Scots like to hold onto their money so it will be popular here too.
3. Good start!increase the threshold to £500K - you can then use the srguement that you are only clobbering the wealthy, that plays well.

[Allen Keyte]

IHT should be immediately abolished on the main residence. As a priority amongst others it should be considered for eventual abolition.
Council Tax should also be abolished and the funding recouped through increasing VAT - finish the job that Michael Heseltine started.

[Jamie Wallis]

Lifetime wills offers an online will creation service.

[Matje]

Forget about the tax and just abolish inheritance.

Why should your undeserving offspring get it anyway?

Leave it all to a charity of your choice.

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With blogs like this around I don't even need website anymore. I can just visit here and see all the latest happenings in the world.