ABOLISH DEATH DUTIES and replace (some of?) them
with LVT revised
What a wicked idea! Abolish
Death Duties, officially called InHeritance Tax—IHT. By definition, dead people
have no more use for their wealth. If you are lucky enough to inherit wealth,
you got to admit that you’ve done nothing to earn it.
So IHT may be a totally justifiable tax, but the voters, especially the
precious hard-working middle class families don’t like it at all. You may be
surprised to learn that these ‘Death Duties’ are the most detested tax of them all. This is what the Labour-supporting
Fabian Society discovered in a focus-group study of voters[1]
found:
[T]hey
were almost unanimously opposed to taxation of inheritance, regardless of their
political views. Their arguments
were striking, emotive and mostly unequivocal. The taxation of inheritance was seen as overwhelmingly
illegitimate and unfair. The most cited reason
was that inherited wealth was subject to ‘double taxation’: parents and grandparents worked, saved and
paid taxes, only for their accrued wealth and property to be subject to taxation once
again upon the handover of their estate.
This view of IHT as the ‘most
unfair tax’ also came up in the YouGov survey. It is no good trying to
tell people that their fears are largely unwarranted, that very few families
are hit by Death Duties[2]. Unfortunately, IHT no longer works as Lloyd George in his People’s
Budget of 1909 intended.
As the twentieth century
progressed the super-rich have found many legitimate ways to dodge paying IHT,
so it has almost become a voluntary tax for them. It now only hits the fairly rich. As a result, the yield from
this tax in 2015-16 was £4.6bn, which is about half of the Stamp Duty
harvest.
Very few estates of the
deceased are required to pay any IHT. In 2012-13 there were 261,384 estates of
which only 17,917 paid IHT. This is less than 7% of all estates[3].
So IHT does not yield much tax revenue, nor does it hit very many tax-paying
families.
Why not do something politically
clever, even though it’s a bit morally iffy. Let’s abolish Death Duties!
There’s a strange anomaly in the Stamp Duty regime. If no
money changes hands, no Stamp Duty is payable! Here’s what the taxman says[4]:
EXAMPLES WHERE NO SDLT PAYABLE:
·
Transfer of deeds. If you transfer
the deeds of your home to someone else – either as a gift or in your will –
they won’t have to pay Stamp Duty on the market value of the property
(You also pay no Stamp Duty during divorce split-ups of
property. I think we’d better leave that exemption alone, along with the
transfer of titles post-mortem of a married partner)
Just to make this a bit clearer: when you inherit, only the
lucky top 7% inheriting a slice of real wealth (£328,000 or more) need pay
Death Duties[5].
For the vast majority (93%) of cases there is nothing to pay. It’s a free gift.
รจ Which gives an obvious nudge for
a small tax-change: Make all inherited landed property subject to Stamp Duty at
the market price. But this won’t be the old
big lumpy form of Stamp Duty. It will be the new mini-Land Value Tax with a
little bit paid annually.
But: (discussion)
1.—should
this include free transfers between non-spouses? I’ve suggested that we keep
out of the political minefield
of divorce and widowhood, but what of other free transfers? Are they few enough in number, and mostly done for
tax-dodging reasons that no-one will complain? Or
are there innocent reasons?
2.—the
top 7% would squeal that this is an extra tax on top of their IHT bill. So
perhaps a slight raising of the
threshold would ‘lift another X thousand hard-working families out of IHT’ (and
it is yet another little step towards
the total abolition of the hated Death Duties altogether.) …or..see point 4.
3.—would
the revenue from the newly introduced mini-LVT be equivalent on a Present Value
basis to the previous yield of
IHT? (£4 billion in 2015)? If not, how to introduce revenue- neutrality into this process?
4.—Stamp
Duty applies only to ‘landed property’. Other inherited forms of wealth eg
shares would not fall into the new mini-LVT net but would still be hit by IHT.
Since the super-wealthy have much more non-property wealth, should this reform exclude property wealth, but kick in at
a much lower threshold, say £100,000
for shares etc.? After all such wealth is far more liquid, and can be converted
into money in part or whole, therefore much easier to whack for IHT. But, but these liquid assets are just the
thing the 1% hide away offshore, and this partial-IHT would again only hit the
fairly rich, who have a fog-horn ability to squeal!
So at this stage of
the conversion of IHT into mini-LVT, only the landed property element of IHT would
be subject to LVT, and this would require only a simple change of rules.
“When you die, your house(s)
however many, however expensive will be exempt from Death Duties. When these
houses are transferred to the inheritors they will become liable for Stamp
Duty mini-LVT”
Meanwhile we could hit the trusts and p.l.c.s with this
new LVT on the grounds that they never
die. (It is one of the strange quirks of English Law that p.l.c.s have
‘personhood’, and can sue for libel — remember MacLibel?) Many of these trusts
are set up to avoid IHT, so including their property element is fair game. “Let
them die a little for the privilege of their everlasting life”
But hold on! We’ve reached the stage where there is still some IHT
left, which is based on fungible liquid asset (shares etc.). The ultra-rich tend
to have more money in shares than houses. So should we hold on to this sort of
IHT to ‘soak the rich’?
No, it’s not really worth it. The 1% have taken elaborate
precautions against being soaked—off-shore trusts being a major example. If
this shares-based IHT is retained it will again be the fairly rich who get
whacked, and all the same complaints will be made.
So let’s make a clean break!
Abolish all Death Duties on all forms of wealth.
We can find better (sneakier) ways of recouping the small
amount lost by increasing the rate of mini-LVT a little. Up from 0.5% to 0.65%
maybe?
Let’s go for it!
On
Day 1 Abolish ALL forms of Death Duties,
and
1.
All free transfers of landed
property, (apart from minor exceptions like married partners) to be subject to
the mini-LVT at market-prices.
2.
All landed property held by
non-humans, such as trusts and p.l.c.s be included in this new mini-LVT status.
3.
Increase all rates of LVT by
about 0.15% because all other forms of IHT have been abolished
This can all happen overnight, apart from step 2. which
might have to be phased in. Some political sleight of hand will be needed to
explain away the increase in everybody’s
LVT, to pay for the loss of some of the IHT revenues. It is a small increase,
and it will hit the super-rich more, and perhaps with the compensation scheme
it won’t feel too bad. I hope.
The cleanliness of the slogan “Abolish all Death Duties!”
is too good to miss!
And IHT abolished may have some good outcomes as well
—fewer
tax lawyers and accountants fudging up tax-dodging schemes.
—repatriation
of moveable assets back to the UK now that they are not going to be hit with
IHT
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