Inheritance tax should be scrapped – it's unpopular and barely raises any money

Inheritance tax is a losing issue for the left and the right, despite raising a mere quarter of 1 per cent of GDP

Liam Booth-Smith
Monday 11 April 2016 16:18 BST
Inheritance tax does not raise enough income for the Treasury to make it worthwhile
Inheritance tax does not raise enough income for the Treasury to make it worthwhile (Getty Images)

On last week’s episode of the BBC Radio 4 panel debate Any Questions, Lord Digby Jones pointed out the "collective hypocrisy" of the British people in their response to David Cameron’s tax travails. He was right to do so. If we all could legally protect our wealth for our families’ futures, then we would, he said – and having taken the most unscientific straw poll of family, friends and colleagues, I think he’s right.

If we could and it was legal, the majority of us, myself included, would want to protect our assets from the taxman – particularly if we had spent a lifetime building something up to pass onto our children. Nobody, even the Prime Minister, should be lambasted for doing so.

In fact, if want to create a truly moral approach to family tax planning, we should go one step further. We should abolish inheritance tax altogether.

The amount of political trouble inheritance tax causes, for both the Conservatives and Labour, is disproportionate given the amount of revenue it raises – around £3.5bn a year, approximately a quarter of 1 per cent of GDP.

For Labour, the issue is a red flag to those aspirational middle class voters it needs to win to win a majority. Even the left wing columnist Polly Toynbee, not one to watch another’s privilege pass by without a snort, thinks inheritance tax is a loser.

For the Conservatives, it is a stick with which they are routinely beaten. Or, as with last week’s Mossack Fonseca revelations, a switch they pick up to beat themselves. They too must feign action on the issue to satisfy the party faithful, but ultimately fall short of doing anything really radical to lift people out of the tax lest they confirm the image that they are a “party of the rich”.

Both parties, however, would be more stable electoral projects if inheritance tax was a non-issue.

Meanwhile, the vast majority of Britons (69 per cent) think it is simply “unfair” to tax inheritance. It may not be immoral to ask for a percentage of an estate to be returned the Treasury, as some have claimed, but it does touch a common nerve. An inheritance is the last gift a parent will ever give to their child; that the government comes in and claims it is owed a share feels more than a little tacky.

Functionally, inheritance tax is also pretty ineffective. David Cameron may be seeing to it that only the “very wealthy” actually pay it, but the problem with this is that the very wealthy have proven themselves adept at avoiding it in the first place. According to some tax experts, we are missing up to £9bn a year due to inheritance tax avoidance. And the wealthy can avoid it because the tax system is complicated in the extreme; every time HMRC closes a loop hole, an army of accountants unpicks another five.

With Tolley’s inheritance tax guide bridging a 1,000 pages, it’s not surprising that only the very wealthy – those for whom inheritance tax is really designed – escape its clutches. They are the only ones who can afford a specialist who can comprehend the rules.

Inheritance tax is one of the most symbolic issues in British politics. For the modern right, it is central to the myth behind the cult of George Osborne. The then Shadow Chancellor’s 2007 announcement to raise the threshold is credited with scaring Gordon Brown into abandoning an early election. For the left, it is a means through which it can break a privileged elite’s hold on the unearned capital that secures it status.

Both sides place too much importance on symbols. A healthy dose of iconoclasm is needed. Inheritance tax is a losing issue for the left and right and they should want to scrap it as soon as possible.

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