Monday, October 01, 2007

I'll explain this slowly for the benefit of Stephanie Flanders, Newsnight, the Labour Party and the left-wing blog-o-sphere

There has been much confusion about the number of people that will benefit from the Inheritance Tax changes announced today by Shadow Chancellor George Osbourne. There are big differences, explained by the fact that some statistics talk about households, others about householders.

Well, this is the way I see it.

The householders don't benefit - they're dead.

It is the families left behind that benefit, and there are a lot more of those than you might imagine.

When my dear old Mum and Dad pass away - which in the case of my Father is particularly unlikely as his Mum is 91 and going strong, and his Aunty was 100 before she died and he has the constitution of a concrete elephant - then the three sons will all share the benefit of this policy.

But we are not "one family". Now we've grown up and moved away, we are three families. Chris has his family, Michael has his and I have mine. Hence from the single property three families will benefit. Three different households in three different areas will benefit. Hence the total number of families that will benefit will be larger than householders who pass away.

Similarly there will be more people benefiting as well. It isn't just the three sons - there will be three partners, currently 3 grandchildren (maybe more) and maybe by then even their partners. At the moment 8 people will benefit from this policy in my circumstances alone and that is bound to rise. The thought that I would benefit financially but my children wouldn't is just silly. Hence from each deceased householder comes far more people benefitting.

And finally the question of how many houses are included. My house in the centre of Norwich, a 3 bed semi, is likely to be worth around 250k which will undoubtably put Louise and I into the current IHT threshold for our kids to pay the tax. Are we rich? A teacher married to a part time teacher? Hardly, and house prices are reasonably low in Norwich. This policy from the Tories will be felt far and wide in the country.

This policy is a masterstroke beyond what I imagined and even what I thought we were capable of. You only have to look at the totaly panic from Labour to know this.

7 comments:

Anonymous said...

Raising the Inheritence Tax to £1m is a very healthy policy.

My on confusion is whether it is an individual allowance or shared estate figure. I am sure this will be cleared up. ie if you are a married couple, is your total estate allowance 2 x £1m.

Anonymous said...

I think inheritance tax should be 100% and income tax should be dropped by a proportionate amount. It's unearned income.

Make your own way in the world, why don't you, instead of ghoulishly rubbing your hands at the potential capital gain associated with a loved one expiring?

Antony said...

Anon - no because IHT is only paid on the death of the last parent. Even if you die together (god this is depressing) it is assumed that one dies before the other and thus assets transfer and then the other dies and the inheritance is made.

Antony said...

Anon - I plan to spend every penny I have before I go and my girls may be disappointed and I hope that my parents enjoy every penny they have too.

But if people want to leave assets to their children then they shouldn't be taxed for doing so - they've paid tax once already!

Anonymous said...

Since the majority of most taxable modern estates comprise a capital gain arising from house price increases, they usually haven't paid tax on it, only on what they paid for it. What is more, interest payments received tax relief until 2000, meaning that paying a mortgage itself had a worthwhile tax benefit.

Unless your departed relative bought a house outright within the last year from cash they saved from their salary, their total taxed expenditure on the principal is likely to be a fraction of its value on disbursement, even if you allow for wage inflation over the period of ownership.

Anyway, the person who paid the tax is dead, and the person receiving the estate has often done little more to earn the income than to stay on good terms with the relative. An inheritance is like a lottery win, but a lot more certain.

I can't think of anything which runs more contrary to the spirit of enterprise and shifting for oneself than this. Prudent or rash, if your parents bought a house 30 years ago, you will be rendered wealthy when the inevitable happens. I'm all for people who have earned their wealth keeping every penny and enjoying any capital appreciation their domestic investments attract, but not people who haven't and just happen to be related to them!

I salute your attitude to your children and parents - I am encouraging my own relatives to extract what they can from their wealth and spend it on making their lives more enjoyable!

James said...

You do essentially get a double allowance if you make a will because the largest asset is generally the family home. If you hold as tenants in common (which a competent solicitor would strongly advise when drawing up the will) the first to die can leave their half to the children or whoever but with a life interest to the surviving spouse. That way you essentially double your allowance.

This is one reason why people who believe they will be hammered by inheritance tax usually aren't. If they have a will and a competent solicitor, a couple's home can be worth well over half a million already before they are in real danger of being hit with a significant bill when the last of them dies.

As it happens, I don't see Inheritance Tax as exceptionally unfair (I mean any more than most other taxes). I don't really understand why it is generally regarded as fair enough to take a large slice of people's earned income but not a slice of unearned income. That's not to say I wouldn't want people to leave money to their children, just that I don't accept it is harsher in principle than other taxes. I appreciate this is apparently a minority view, but if my parents leave me money I will be grateful for the windfall but would on balance rather they enjoyed it in their own lifetimes.

Peter C. said...

One day Inheritance Tax will become an accepted norm.

At least I keep hoping.

I can never quite understand the 'omg taxing dead people is like evil' viewpoint.

Maybe if it was demonstrated the good it can do (in particular lives it can save), things would soon change.