Copping the lot
Why are death taxes staying when every other economic orthodoxy is going?
With death comes taxes and taxes means revenue for the Government. The more death, the more death taxes and the more the Government will gain in revenue. The likely scale of the Coronavirus epidemic is therefore a potential money-spinner for HMG on a vast scale. A permanent transfer of productive private family wealth to the government that will create lasting damage piling extra heartache onto grieving families. Given the extraordinary measures the government is considering in every single other aspect of the economy, why should they not act to stop the staggeringly unfair treatment rigidly applied IHT rules will impose on people over the next few months? The harm such behaviour will do will be absolute.
The scale of the nationalisation of wealth is potentially staggering. The virus preys disproportionately on the elderly. Statistics, [Here, here and here] show that those over 65 have (or had before the stock market crash) around £4tr in assets out of a total UK wealth of £13trn.
This age group may, on some measures, suffer a mortality rate of up to 8%. Inheritance or death tax is charged at 40% on any estate over £325,000 mean the virus could end up stripping families of vast swathes of their savings built up over generations.
Before the crisis, the Office for Budget Responsibility had forecast the Government would receive £5.4bn from the dead next year. They could now be receiving tens of billions more. Beyond the inherent nastiness of a tax visited on grieving families this would be a massive social injustice.
First, inheritance tax was never intended to affect nearly the entire country. When it was first introduced it was at a comparatively low level and designed by a Liberal Government to break-up the power and wealth of a small number of landed estates. The destruction of these estates was accomplished, arguably to little social benefit while incurring a massive and permanent loss to our cultural history. Moving such confiscation down the scale to anyone with a property or modest savings will visit the same damage on the middling classes. Death taxes remain the same penalty for sobriety, industry and prudence they always have been, but are now applied to vastly more victims, with the virus about to trigger a very grisly rollover jackpot for the Treasury.
Secondly, on a practical level, COVID-19 will have serious side effects on the families of the deceased paying death taxes. Will they pay tax on and find themselves forced to sell their highly valued properties all at once into a sluggish property market, thus compounding their loss? Will the administration of the tax be possible without running into fees and penalties given the potentially hundreds of thousands of families in the same situation? Many families will have had little time to plan for the virus, dying without wills or estate planning. This will all be good news for the Treasury and bad news for family wealth.
We don’t have to be Edwardian Liberal little Englanders
This tax on wealth is one of the most destructive in the Treasury’s arsenal. Destructive of assets that would otherwise produce security and incomes. When John Major spoke about “wealth cascading down the generations” he spoke of a social good. Be it investments in global shares, family companies or houses, it is not a bad thing that parents provide for the next generation independent of the state. Income from investments provide tax in the future. An inherited house will make a family independent and free from the state and mortgages leading to a better and more secure life. In the hands of the Government this wealth, often built up over generations, can be spent but once. And then it’s gone. Drained away, with all the state’s inimitable efficiency and charm.
The potential scale of mortality in this crisis should be a chance for politicians to revisit many assumptions, as they already rapidly have in plenty of other fields. A question we must ask, surely, is: should death be taxed?
Canada and Australia and many other countries took a different road and avoided this tax: they are richer and freer societies for it. We don’t have to be like this: we don’t have to be Edwardian Liberal little Englanders, priggishly unwilling to learn from the lessons of abroad.
The Conservatives have routinely promised cuts in death taxes before general elections. At one point it was promised to raise the threshold to £1m. These were popular pledges – but have never been delivered. To avoid adding to the pain and havoc on the way for so many families all at once, the Government should take the opportunity to deliver on its promises – do, as Rishi Sunak declared, “whatever it takes” – and provide some piece of mind for the frail and elderly by abolishing this tax for good.
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