The Garrulous Jay – The Death Of IHT?

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The Daily Telegraph has launched a campaign in support of the abolition of Inheritance Tax (IHT). I could be proven wrong but I think flocks of pigs will be circling Westminster before this happens. Nor am I convinced by the arguments.

For starters, as the old saying goes about good comedy, it’s about timing. It would be wonderful if we could all pay less tax all the time, and when the economy is going great guns and the public finances are in fine fettle, cutting taxes can turbo-charge growth in a virtuous cycle of rising prosperity.

Reality check alert: that time is not now… The UK’s forecast GDP growth is among the lowest in the G20 (source: OECD), and the country’s debt-to-GDP ratio of 99.2% is “at levels last seen in the early 1960s” (source: ONS).

Sounds like a good time to splurge on a £7.0bn tax cut, right?

But perhaps I should not be so dismissive: the campaign has some high-profile political backing. Nadhim Zahawi, Liz Truss and Nigel Farage are supporters.

Three particular arguments seem to crop up repeatedly from the abolitionists:
• Inheritance tax is morally wrong
• It penalises ordinary people
• It is a form of double taxation.

The “morally wrong” argument sounds to me like a rhetorical circular reference.

Simply put, if morals are about the difference between right and wrong, this is a bit like saying IHT is wrong because it’s wrong. Hmm!

But if the argument is about taking funds from those that can afford it to pay for public goods and services, we might as well throw all forms of taxation into the hat. A debate for another day perhaps.

When it comes to those mythical “ordinary people”, the focus tends to be on those caught by the tax as a result of house price inflation.

You would think millions of homeowners might be sleepwalking into leaving an unexpected tax bill behind when they die.

I don’t buy it. In March 2023 the average UK house price was £285,000 (source: HM Land Registry). That’s less than one person’s so-called nil rate band of £325,000 on which no IHT is due. But married couples and those in civil partnerships can pass on their nil rate band to their surviving partner giving £650,000 of exemption. If they leave their home to their direct descendants they get another £175,000 each… Total exemption £1 million.

There are just 730,390 homes in the UK worth over £1 million (source: Savills): 2.0-2.5% of the total stock. QED.

Then there’s the double taxation argument… You work hard, you pay your income tax then, when you die, all the accumulated wealth gets taxed again.

Well, I have some bad news for you folks: double taxation is all around us when we spend or invest our hear-earned bonce: think VAT, think fuel duty, think Capital Gains Tax. Bottom line, IHT isn’t so special.

Finally, given there’s no magic money tree, I think the abolitionists should be careful what they wish for. In the unlikely event a government did get rid of IHT I think it would come with a sting in the tail. Possibly the equalisation of CGT rates with income tax rates. Maybe the uprating of Council Tax bands to 2023 property values. Who knows.

Better the devil you know.