Tory dodgy stats on Inheritance Tax laid bare


2:43 pm - January 2nd 2010

by Sunder Katwala    


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Fabian Research Director Tim Horton’s proposal that the inheritance tax thresholds should be frozen was adopted by the government in November’s pre-budget report.

He has letters in The Guardian and (why only preach to the converted) The Telegraph pointing to just one of the glaringly obvious flaws in Phillip Hammond’s rather back of the envelope claim that 4 million people will now be liable for inheritance tax, put out by the shadow Treasury Secretary during the holiday period.

Here’s The Telegraph letter.

SIR – The Conservatives’ claim that four million face inheritance tax (report, December 29) is wrong.

For most households, the value of wealth owned at death will be less than the value they currently hold. Many people use some of their wealth in older age – whether to pay for care or to do things in retirement. So, you cannot use the current distribution of wealth across all households to calculate who will face an inheritance tax liability in future.

The reality is that only the richest two per cent will pay inheritance tax this year. Even in the boom years, only around five per cent of estates paid the tax.

So Labour should stick to its guns on this issue. The Conservative plan to cut inheritance tax is no more than a billion-pound giveaway to the very wealthiest estates in Britain.

At a time when David Cameron is also promising deep cuts to public services for middle-income households, most voters will think he has the wrong priorities.
Tim Horton
Research Director, The Fabian Society

This is far from the first time that the Conservatives have deliberately misled as to who would benefit from this policy.

George Osborne absurdly told The Guardian in July that the policy was designed to help those who took up the right to buy, though he knows that his proposal does absolutely nothing for those whose estates are worth less than £325,000, or £650,000 for couples.

“We’re very clear that millionaires should pay inheritance tax. But people who have worked hard, bought their own home, sometimes it’s a council house that they’ve bought … The proposal … includes all sorts of people with inheritances of less than a million pounds.”

The claim to want millionaires to pay is equally bogus, given that Osborne has devised a policy where couples with estates of £2 million will pay nothing. (It took almost a year for the Conservatives to disclose the £2 million policy publicly, then telling The Telegraph that “”This has always been our position; it’s just that we haven’t shouted about it”).

And only couples with estates worth over £2 million will benefit from the maximum (half a million pound plus) tax break on offer.

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cross-posted from Next Left

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About the author
Sunder Katwala is a regular contributor to Liberal Conspiracy. He is the director of British Future, a think-tank addressing identity and integration, migration and opportunity. He was formerly secretary-general of the Fabian Society.
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Story Filed Under: Blog ,Conservative Party ,Economy ,Media ,Westminster

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Reader comments


The inheritance tax is going to be one of those totemic issues that Labour is going to milk for all it is worth, and a policy which once caused Gordon Brown to cancel the expected election due to its popularity, could, if marketed correctly be a boon the Labour.

However, as the proposal is essentially a tax on rich foreigners to help rich Brits, Labour will have to hope that the general public are not educated about that reality – otherwise they might decide it is an irrelevance to the 98% of the population who will neither gain nor lose from the proposal.

Hmm. So if we’re allowed to pint out the errors in the Tory proposal, are we also allowed to point out the errors in the Fabian response to it?

“The Conservative plan to cut inheritance tax is no more than a billion-pound giveaway to the very wealthiest estates in Britain.”

Come along now, we all know very well that the wealthiest estates don’t pay inheritance tax either. Absolutely no one is seriously suggesting that when the Duke of Westminster pops his clogs that the State is going to get 40% of his £5 billion now, are they?

Whether it ought to or not is entirely another matter: we know very well that it won’t.

And given that farmland, AIM and unlisted shares, family companies and….well the list goes on…..do not count as part of an estate for inheritance tax purposes, well, it just isn’t the “very wealthiest estates in Britain” that pay it.

Far from it in fact. The truly large estates don’t pay it because they can avoid it.

Far from it in fact. The truly large estates don’t pay it because they can avoid it.

Great, at least we’re concerned about the same thing. Now how about some ideas to get them to cough up?

most voters will think he has the wrong priorities

ComRes Poll – Fieldwork 18th – 20th December 2009

“The threshold for paying inheritance tax should be raised to £1 million?”
Agree 55%, Disagree 38%

Among those who said they would vote Labour
Agree 50%, Disagree 42%

I daresay most voters think he has the right priorities.

5. Fellow Traveller

It’s not a ‘giveaway’ when you fail to tax someone. You’ve not given them anything they didn’t possess to begin with – you’ve merely not taken anything off them. To call not taxing someone’s income or wealth a ‘giveaway’ suggests an implicit belief that everything anyone owns (all of it – 100%) already belongs to the state in the first place.

This just shows the hypocrisy and lies of the Tory party. According to them the biggest problem facing Britain is the deficit, so why would your first policy (after restoring fox hunting of course ….ha ha ha ) be to cut a tax that has been in place for decades? And cut stamp duty on share dealing, and spend more on the military?

The answer can only be that the deficit is not the huge problem they claim, and that they are going to run the govt for the benefit of the rich middle classes. Tory class war is waiting to be launched.

Because, sally, it is meant to be a Conservative government – not a Labour government that spends less money.

Still, it’s good to see you think fox hunting has stopped simply because there’s a barely policed, badly worded law on the books now. Presumably you also feel that making a law that says the world temperature must not rise by more than 2 degrees will immediately halt global warming.

If IHT is so popular, why did Labour increase the combined threshold to £650,000 for married couples?

If IHT is so popular, why did Labour increase the combined threshold to £650,000 for married couples?

Oh dear, we do have the stupid trolls today.

The INT threshold has been moved about by most govts over the years. What call me Dave and his Etonian mafia are proposing is to get rid of it completely. Along with stamp duty on share dealing, another tax that will benefit the wealthy middle class, and they are going to spend more on defence. That is a lot of money, from a party that claims that the deficit is the number one priority.

Of course, it may be that they are going to make enormous cuts in spending on welfare and education and health to cover this. In which case they should have the honesty to inform the British people what they are going to do.

9. It seems that you are incapable of engaging with anyone who doesn’t agree with you.

“Great, at least we’re concerned about the same thing. Now how about some ideas to get them to cough up?”

I’ve not seen anyone, anywhere, suggest that we should rip up trust law, nor that the huge class of things which are not included in IHT should be. I’ve certainly not seen it here, from you, or from any other writer or even commenter here. Most certainly I’ve not seen anyone in the current Labour Government suggest such a thing either.

The only thing I’ve seen here or even elsewhere is somthing which I think we’ve all pretty much agreed on. Don’t tax the estate. Tax the recipients of the legacies.

But if you want ideas on how to increase the take from IHT, then the basic thing you’ve got to do is make all assets subject to it. Farmland ain’t at present. But if you make it so then economic sized farms (a couple of hundred acres and above in the south of England) will have to be sold upon the death of the farmer to pay the IHT. We might even find that they become fragmented and thus uneconomic…..you see, there are some problems with doing this sort of thing.

Or family owned companies: these are exempt. But if you include them then the same problem arises. You’ve got to sell them off or at least bring in outside investors to pay the IHT. Which is why they are currently exempt.

Trust law is even more difficult. Trusts don’t exist for the purpose of avoiding IHT. They’re a creation of centuries of Common Law. That they’re used to avoid IHT is true: but to stop that you’ve got to overturn all those centuries of Common Law. Which brings you up against that problem that Tony Blair had when he abolished the office of Lord Chancellor. And then had to backtrack when it was gently explained to him that huge areas of the British Constitution relied upon the fact that there was an office of “Lord Chancellor”.

For example, a distant cousin had what is now called Down’s Syndrome. Years back when it was called something uglier. His parents left their money in trust for him, so that after their deaths he would be cared for. That’s what trusts were orginally for (or that srot of thing at least) but if you abolish them in the name of increasing the IHT take then you abolish those sorts of arrangements for (what is the word I’m supposed to use these days? disabled? less abled? differently abled?) those who need them.

Me, personally? Abolish IHT entirely. Let the next generation inherit the moolah without the trust funds. One, two or three generations down the line they’ll inevitably piss it all away as with, say, the Marquis of Bristol, on heroin and taxis.

Tim Horton’s DT letter fails to appreciate basic voter psychology, and shows how out of touch with reality the left has become.

There are millions who, were they to be hit by a bus tomorrow (and you’re not offering to guarantee their longevity, are you, Tim?) would “face” punitive “double taxation” by IHT.

The Tories are quite right to highlight this, and it certainly does affect “right-to-buy” and “shared” home-owners.

And there are millions of others who aspire to become wealthy (despite what Labour has planned for them). That’s right: even socialists want to be rich.

This is how real people think. Real taxpayers who might read the Guardian or Telegraph.

To win a vote is to appeal to an individual’s aspirations.

But the only promise and reassurance Horton’s letter offers voters is that they, en-masse, will (probably):

1) GET POORER
2) DIE

There’s the extent of Labour’s ambition.

The phoney class war (dreamt up on the playing fields of Lorretto?) will only appeal to people who were never going to vote Tory anyway.

Reliance on this hopeless “strategy” will deservedly result in total electoral disaster.

@13eastie – Cobblers, from beginning to end.

The government was wholly right to freeze current IHT allowances.

IHT remains the most justified tax there is. It rightly takes a proportion of unearned wealth for the state from beneficiaries who haven’t done a tap to earn that windfall.

The Tory attempt to claim that their proposal “means that only millionaires will pay the tax” is wholly transparent, self indulgent and an open goal for the government.What the Tories really mean is that most millionaires will be able to pass on their estates completely free of any obligation to society that sustains them. While those estates that do pay the tax will pay a far smaller percentage.

The Tory proposals amount to ossifying privilege for the rich in an immoral attempt to permit them to derogate from their civil duties. It is the antithesis of meritocratic politics – abolishing IHT will simply lead to the explosion of mediocre dynasties. Like the Bush one in the US, for example.

“It is the antithesis of meritocratic politics – abolishing IHT will simply lead to the explosion of mediocre dynasties. Like the Bush one in the US, for example.”

Most amusing. You do realise of course that the Bush dynasty has established itself while the US has had an equivalent of IHT rather more severe than the UK version do you?

Or perhaps you don’t….

@14. Yep, well aware of the more punitive US IHT laws, thanks.

Explosion of indulged, mediocre dynasties will be the direct result of Tory proposals.

And I could have pointed to the tawdry Windsor dynasty in this country as another example of a “mediocre dynasty”.

It is the avoidance of the ossification of wealth at the top end that requires avoidance. So we don’t get so many Bushes and Windsors.

Hope that clarifies the point.

16. sevillista

@sean

“If IHT is so popular, why did Labour increase the combined threshold to £650,000 for married couples?”

You are right that raising IHT limits seems to be popular – at least among swing voters in marginal constituencies who are the kingmakers in our skewed political system – but this is due to people mis-understanding the inheritance tax system.

People think they will be liable for the tax when they will not be – few homes are worth more than £325,000 and even fewer than £650,000 limit most will have access to.

This is a major success for the right – they have convinced people they would gain massively from a measure that only helps the top 6% and their relatives, but Labour were panicked into a highly regressive measure amid election fever in 2007

Not really something to celebrate if you believe in an informed democracy.

@13eastie

“There are millions who, were they to be hit by a bus tomorrow (and you’re not offering to guarantee their longevity, are you, Tim?) would “face” punitive “double taxation” by IHT”

Not true. If you are a) single; and b) have net assets over the threshold then yes. However, very few people find themselves in this situation – indeed, it is around 6% of adults who die in any given year.

And what rate of tax do you define as “punitive”? For a single person, the IHT rate is 40% for all net assets ABOVE £325,000. So, the relatives of someone with net assets of £500,000 would pay tax on their lump-sum at an average rate of ((500-325)*40%)/500 = 14%, receiving £430,000 untaxed. Is 14% punitive? For someone with net assets of £1,000,000, they would pay tax at a rate of 27%. Is this punitive?

On your “double-taxation” point, this is baloney. Everyone is “double-taxed” on their income – I pay income tax, and out of this taxed income I pay VAT and other duties. And, besides, most wealth – at least in (upper) Middle England is made up of housing wealth – which is untaxed and has increased massively over time due to factors beyond the control of homeowners rather than their hard work (unless you think successful NIMBYism is hard work that society needs to reward).

“it certainly does affect “right-to-buy” and “shared” home-owners”

Find me a property bought via RTB or sold via Shared Ownership schemes worth more than £325,000. You live in a land of make-believe.

“To win a vote is to appeal to an individual’s aspirations”

I see. Instead of following policies that help people fulfil their aspirations (say, education, health or other ones which may boost the working classes life chances), the best policy to help aspirations is to bung £3 billion to some millionaires. Seriously? You think the key barrier to the poor getting by on the minimum wage from being successful is fear that after they die their children may have to pay a few thousand extra to the Government out of a massive lump-sum windfall. They’d rather their children inherited nothing than for this to happen.

“The phoney class war (dreamt up on the playing fields of Lorretto?) will only appeal to people who were never going to vote Tory anyway”

How is keeping something the same a war? I thought wanting to change tax laws to the benefit of the top 6% in the country would be more meritous of the description “class war”. It is the Conservatives wanting to engage in class war and Labour defending the poorest against this onslaught (though sadly doing it rather meekly).

Infact I ‘m all for getting rid of IT, and instead replace it with capital gains tax on all the people who get the money.

After all, if someone leaves you money, it is an capital gain.

I think Labour’s emphasis on this will backfire in London.

My father lives in Battersea – South London. He’s retired and lives on an occupational pension of £17,000 p.a.

He is very far from being a millionaire.

But after 30 years paying a mortgage he owns his home and it’s worth more than £650,000 – even though it’s only a three bedroom terraced house with a leaky roof.

I can easily see him voting Tory if that will mean me and my sister don’t have to pay IHT when he dies.

Whatever you say Sunny, this is more than just about giveaways for the super-rich. It affects working class families too.


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