James Daley: Inheritance tax? It's perfectly fair

Alistair Darling's tinkering with the Inheritance Tax rules, in this week's pre-Budget report, was not nearly as big a deal as he, or most commentators, made it out to be. In a nutshell, it's now possible to pool your inheritance tax allowance of £300,000 with your spouse or civil partner – something that it's been possible to do with a bit of clever tax planning for many years. The only real difference is that it's now much simpler.

Nevertheless, Darling was keen to paint the move as a major reform – effectively pandering to a cunning piece of Tory politicking by his opposite number George Osborne, who curiously managed to capture the voting public's imagination last week by suggesting that inheritance tax had become an unfair penalty on the middle classes.

Osborne was certainly right to point out that inheritance tax was originally designed only to hit the wealthiest families – and that increasing numbers are now finding themselves caught by the tax because of the huge inflation in property prices over the past few years. But why should people whose houses have soared in value, on the back of an asset bubble, not be forced to pay that tax as well? If they're sitting on assets of more than £300,000 when they die, then that makes them pretty wealthy in my opinion.

The principle behind inheritance tax is not simply to penalise the rich, it is also about redistribution of wealth. In fact, it was invented by the Romans more than two millennia ago, and was first used as a way of paying for soldiers' pensions – but today, it is more widely seen as a way of trying to maintain some degree of equality in society, preventing the gap between the richest and the poorest growing ever wider.

Few would disagree that £300,000 is a lot of money – and it seems perfectly reasonable to me that anything above that is taxed. Families can hardly claim that they're being robbed of their family's money if they're starting off with £300,000 and then also gaining 60 per cent of everything left above that.

I've seen inheritances make a big difference to a number of my friends – £10,000 or £20,000 from a grandparent has helped them take their first steps on to the property ladder, or helped them get through a Masters or PhD debt-free. But they still received that money, in spite of their relatives having to pay inheritance tax.

All this may well become fairly academic in years to come anyway. As life expectancies continue to increase, at the same time that the savings ratios continue to fall, the next generation of retirees are likely to find they are forced to call on their housing wealth to fund their retirement – and maybe even their long-term care thereafter (see this week's feature on page 10 for more on this topic).

Given that most people still have aspirations of retiring in their sixties, yet are likely to live well on into their 80s, the sums just don't add up at the moment.

I have to admit that my own pension is still pretty meagre (although I'm ready to work till I'm 80, so I'm not too worried!), but if I do have any spare cash left as I'm approaching retirement, I'll spend it on my children and grandchildren while I'm still alive to see them enjoy it – and I'll travel to every corner of the globe as long as my body's still able. And if I'm lucky enough to have more than £300,000 left over after I've done all that, the Government can take as much as they want.

j.daley@independent.co.uk

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

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