No one enjoys paying tax, but the majority accept that to keep the country running we simply have to pay up. At least, while we’re alive. But when we’re dead? Isn’t that a tax too far? After all, we’ve worked all our lives to save a little nest egg that will cushion our old age and even, perhaps, buy our own home. Yet the moment we’ve shuffled off this mortal coil, the government could come and take a considerable chunk of our hard-earned bequest. Is that fair, when we’ve already paid income tax on the money we’ve earned, VAT on purchases we’ve made, or capital gains tax on any investment growth we’ve accrued? Some versions of our inheritance tax, originally introduced to finance the Napoleonic war, date back to the seventeenth century.
The current variety arrived in 1986, with inheritance tax replacing capital transfer tax; folk have been warring over it ever since. The new tax was intended to simplify the system, the basic premise being to levy a flat rate of 40 per cent on the estate of a deceased individual, above a certain threshold. This threshold currently stands at £325,000, and the levy comes into force if the dearly departed has not left everything above this amount to their spouse, civil partner, a charity or a community amateur sports club. And it gets even more confusing, because multiple further exemptions, reliefs and deductions create a tangled web of complexity for the taxpayer and HM Revenue & Customs.
Now a group of 50 Tory MPs is calling for its abolition, supported by the short-term former prime minister, Liz Truss, a long-term opponent of inheritance tax. Truss argues that the British tax system “isn’t working” as it’s “too complicated”. But inheritance tax mostly affects the richest, so those who would benefit most from its abolition would be the wealthiest four per cent.
So far, no politician advocating the scrapping of inheritance tax has come up with a plan for how the government would make up the lost income. Options could include reducing the state pension by seven per cent, or increasing income tax by one per cent.
Or both!
