Inheritance Tax - should the UK scrap or keep it?

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Reproduced from The Telegraph

THE BBC has reported on the arguments surrounding inheritance tax (IHT) — is it a good thing or a bad thing? Here, Garry Bushell makes the case against the tax, next week we'll consider the case for...

OF course Inheritance Tax should be abolished. Families are being taxed on property, possessions and savings that their late loved one has already paid tax on, making it a punitive form of double taxation.

It's also counter-productive because taxing inherited wealth weakens the UK's capital base and as a direct result hurts job creation and the economy.

Opposition to the IHT used to be a widespread, and we still encounter the odd MP who is bold enough to make the case. But all three of our main political parties are now wedded to the idea that IHT is morally justified and the mass media reflects that questionable consensus. To oppose this pernicious tax is to expose yourself as a selfish, uncaring, even anti-social individual. Or so we're told. But that's neither fair nor accurate.

For starters, let's consider new businesses. Most aren't funded by bank loans, they're funded by savings. Consequently taxing inheritance shrinks the pool of available seed money.

This isn't speculation. Economic studies from the 90s on have illustrated how closely inherited money is linked to people launching business start-ups.

Targeting it robs new firms of a vital source of financing and in the process damages economic growth and therefore employment opportunities.

Now it's true that relatively few families are clobbered by this tax, but the percentage is rising steadily. It reached a 35-year high last year as house prices pushed the value of family assets above the static tax threshold.

This meant that nearly three times as many estates faced death duties in 2016 than did in 2010.

The Office for Budget Responsibility estimates that more than 45,000 bereaved families are liable to pay IHT in this current tax year — that's one in twelve estates. That's the highest number of families since Margaret Thatcher's first year as prime minister, 1979-80, when a tax of up to 75 per cent was levied on inherited assets above £25,000.

The Cameron government clearly set out to deliberately drive up the number of people affected by IHT. George Osborne, the then Chancellor, did this by freezing the tax-free allowance, or nil-rate band' (which has stayed at £325K since 2009) and cutting the relief that allowed some families to cut their IHT bills.

He did this at a time when house prices rocketed, especially in London where average prices have shot up by more than 60percent in the last seven years and, as a result, made tens of thousands more families eligible for an IHT hit.

Instead of funding enterprises, that money went on state expenses — salaries, wages, bureaucracy, benefits, bizarre projects like the National Graphene Institute, and Osborne's seemingly endless supply of photo opportunity hard-hats.

No-one benefits from the government spending money on paying people not to work, or interfering with our ability to work, invest and produce. But we do benefit as a society from additional capital investment.

There is a case for IHT, of course, which for balance we'll return to next week and, as we've discussed elsewhere, there are several legitimate ways of lessening the impact of inheritance tax.

You can invest in agricultural estates, for example, as they're tax exempt. But buying working farms rather than investing in new businesses doesn't seem to be the smartest use of capital.

Nor does converting it into consumption, as the state effectively does.

IHT is now one of the most complicated areas of British taxation. The latest edition of Tooley's definitive inheritance tax guide is nearly 1000 pages long. The Daily Telegraph called it a bureaucratic nightmare and the book "mostly gobbledygook". The guide costs a little under £137 but you'd need to spend far more on accountants and lawyers to decipher all of its many clauses and sub-clauses.

Yet to question this and suggest that the economy would function far more efficiently with a simpler tax system and less state spending is apparently heretical.

The death tax punishes people who have worked hard all their lives. It targets people trying to give their children a better start, hurts investment and is an anchor on the entrepreneurial spirit that drives prosperity.

In other words it does for the economy what TV's Doctor Foster would dearly love to do to her love rat of an ex-husband.

Garry Bushell, September 2017

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