Most of those who, despite all discouragement, continue to invest in the UK have a sense of foreboding over an Andy Burnham premiership. We know that he will try to reconcile two irreconcilables. First, he will offer bold, exciting change from the uninspiring couple of years under Keir Starmer. Second, he will resist holding an early general election to secure his own mandate by promising continuity: implementing the policies from Labour’s 2024 manifesto.
The bold, exciting change is a bit sketchy but is sure to involve spending more money. The continuity aspect is thought to include sticking to the pledge not to increase income tax, VAT and National Insurance. Of course, those have already been broken. ‘Labour will not increase taxes on working people,’ was Labour’s manifesto pledge. But the thresholds were frozen, which has meant that, with inflation, working people have paid more tax. The increase in employers’ National Insurance has also had an inevitable cost to employees. Still, it is likely that Burnham will seek to avoid putting up the taxes even more.
Inheritance tax is complicated enough. But making CGT into a second death tax would be an administrative nightmare
There has also been some indication that he has resiled from his notion that the Government can simply borrow more and refuse to be ‘in hock to the bond markets’ – akin to brushing aside the strictures from a bank manager about an overdraft limit.
So, that leaves him looking at other taxes to put up, to pay for the spending splurge. The Daily Telegraph reports that Burnham is considering ‘changes to the so-called capital gains tax (CGT) uplift on death rules’. That would, put more plainly, leave inherited family homes at risk of being liable for CGT. Effectively, it would mean two death taxes. As well as inheritance tax, the grieving relatives would also be stung with a hefty CGT bill. Though it isn’t levied on your main home, it is applied to other properties and business investments (including shares not held in ISAs). The ‘uplift on death’ exemption means that your relatives do not have to pay CGT on any increase in value when you die – only if they sell the property at a later date on any further increase in value.
Suppose you were left a second home that had been bought for £500,000 in the 1990s and was now worth £1 million. If you are a higher rate taxpayer, then under Burnham’s scheme, you would have to pay 24% on that ‘capital gain’. Much of that gain is nominal, as it is accounted for by inflation rather than a real increase in wealth. That would be £120,000 down to start with. That leaves your inheritance at £880,000. But then there is 40% inheritance tax on top of that. So that means the Treasury grabs another £352,000. The double whammy would cut your inheritance down to £528,000. Perhaps to be shared with siblings and others.
Inheritance tax is complicated enough. But making CGT into a second death tax would be an administrative nightmare. Imagine all the challenges in finding accurate records and the disputes over valuations. What about the spending on home improvements that should be set against the capital gain?
Anyone who has been given the role of an executor to a relative will know how time-consuming and emotionally draining the experience can be. Lawyers require certificates that are buried deep in the back of some drawer amidst the sobs and disputes. Throwing CGT into the mix would be an extra personal burden as well as a financial one.
‘Boo hoo,’ the Burnhamites might retort. ‘Cry me a river.’ ‘Poor little rich kids.’ (Though such rousing class war rhetoric would usually be combined with anxious but discreet enquiries with their own accountants about how they could sidestep it.) The usual political calculation is that taxes on the rich are popular. That’s what the polling usually suggests – with the proviso that ‘the rich’ usually means someone a bit richer than the person being polled.
Death taxes tend to be an exception, though. There is a natural sympathy with those who have worked hard to build up some wealth, being taxed along the way, who are then taxed again when they die before it can be passed on to the next generation. We saw this with the widespread opposition to Labour’s tax hike to penalise family farms.
Polling for YouGov, earlier this year found that 58% regarded inheritance tax as ‘unfair’, including 30% who thought it ‘very unfair’. Only 14% thought inheritance tax ‘fair’ – with just 3% thinking it ‘very fair’.
Then there is the matter of whether it would really raise any money. Already, the wealthy are regarding the UK as a hostile environment and some have emigrated. The globe is full of choice. New Zealand, for example, has no inheritance tax or CGT on death. The United States has similar CGT exemptions to us. Though it does have a federal estate tax, it only kicks in on estates over $15m per individual. Several European countries also offer much better deals than we do. Portugal has no inheritance tax. Italy does – but it’s only 4%. Even Communist China doesn’t have inheritance tax.
The UK already has among the most vindictive tax regimes on death in the world. (France is one of the few that is even worse.) If Burnham wishes to make it yet more punitive, then he must expect some ‘behavioural change’, as the Treasury calls it – in other words, yet more wealth creators deciding to scarper.
But it is not just emigration. The breaking up of family businesses will have a damaging impact. So will the broader signal that risk and success are not being rewarded.
Perhaps it will never happen. I have noticed that Burnham is happy to float an idea and then retreat if it comes in for criticism. Whenever anyone called on him to do something during the by-election, he invariably replied: ‘That’s certainly something we should look at.’ A loyal Oasis fan, he has adopted ‘Definitely Maybe’ as his personal motto. But before he moved to Manchester he was a Liverpudlian. The Beatles song ‘Taxman’ includes the lyrics: ‘My advice for those who die, / Declare the pennies on your eyes, /… Yeah, I’m the Taxman, / And you’re working for no-one but me’. Let’s hope that Burnham considers that protest from Liverpool’s other famous sons.
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