4 June 2023

Weekly Briefing: Is it time to scrap inheritance tax?

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Few items of public policy raise the public’s hackles quite like Inheritance Tax (IHT).

For many Brits it seems to be more a moral question than a financial one: that the state should intercede in what is normally a family matter sticks in the collective craw like little else.

George Osborne tapped into that well of resentment back in 2007, when as shadow chancellor he staved off the threat of an early election by promising to raise the allowance for IHT to £1m (to make it even more populist, he pledged to finance it by taxing those nasty non-doms…).

Nor is it just us Brits who dislike the idea of a posthumous tax raid. American consultant Frank Luntz, who has a singular talent for political phrasemaking, understood that visceral aversion when he urged the Republicans’ to hammer home the idea of a ‘death tax’. For while ‘estate tax’ conjures images of blue-blooded plutocrats, death is rather more catholic in its application.

So you can see why The Telegraph launched a campaign this week to do away with IHT altogether. That idea has the support not only of Liz Truss, Jacob Rees-Mogg and Nadhim Zahawi, but over 90% of the paper’s readership too. Tory red meat doesn’t get much redder than chucking the death tax on the fiscal pyre.

Even if you’re not convinced by the moral argument against IHT, many would argue it is a bad tax for other reasons: that it often amounts to double taxation, that its weird exemptions for things like agricultural land distort spending and investment decisions, and, relatedly, that it’s horribly complicated.

These are all valid points, particularly the latter. The Taxpayers’ Alliance once estimated that IHT accounts for about 10% of the British tax code, and about 0.2% of revenue to the Exchequer.

But the essay question for the Government and Tory MPs isn’t whether, in an ideal world, they would like to get rid of IHT, but whether it should be a plank of an upcoming election campaign.

Here, the first point is about politics. Yes, IHT polls pretty damn badly (see this recent survey), but it’s not an issue that’s often been raked over the way it would be in an election campaign. Given that very few estates currently pay IHT, you can see how the idea of abolishing it would swiftly become ‘Tories going in to bat for the rich’, perhaps with some personal attacks on various wealthy MPs for good measure.

The second point is about priorities. If we’re going to talk about tax cuts, there are many far more obvious candidates for the chop than IHT. As a country we seriously overtax wholesome activities like earning money, employing people, running businesses and moving house. I would sooner cut income tax, business rates, employer NI or stamp duty before even thinking about IHT.

The final point relates to the one about politics: where would this policy fit into an overall Tory message? If voters are asking ‘what have you done for us and what are you going to do for us in the next five years?’, is promising to abolish a tax most would never have paid in the first place going to butter many parsnips?

That doesn’t mean abandoning reform: reinvigorating something like Osborne’s £1m proposal, combined with simplification of one of the most overwrought bits of taxation on the books would be a lot better than the horlicks of a policy we have at the moment.

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John Ashmore is Editor of CapX.