Inheritance Tax: An Unnecessary Evil

Inheritance tax is one of the Left’s most loved concepts. They see it as one of the fundamental ways we can prevent riches being amassed and kept to certain parts of society, passed on through the generations. It’s dressed up as a tax to “make the playing field even”, to redress widening income inequality: it stops the rich kid from benefiting too heavily from his parents’ money, and redistributes it to the poorer kid.

Well, does it? The first, non-principled, attack on inheritance tax is that the proceeds are not ring-fenced for the kids right at the bottom of the social chain. Instead it’s stuck in the big “Government Spending” pot in the middle – so this idea of redistribution and evening things up actually falls flat in practice. Sure, the tax takes money from the rich, but it doesn’t necessarily give it to the poor. If the defenders of an inheritance tax were so convinced of its re-distributive power, shouldn’t they be using the proceeds to fund, perhaps, further university grants? More one-to-one time for children with special needs in our mainstream state schools?

The Conservatives have form for realising that inheritance tax, or death tax, is an example of an immoral tax. Osborne and Cameron said when in Opposition that the desire to pass on to your family the wealth, un-taxed, you have accumulated throughout your lifetime is the “most basic human instinct”. Yet, despite assurances that inheritance tax threshold will go up to £1million, this week the Conservative-led Coalition have stated they will be freezing the inheritance tax threshold at £325,000. Their excuse? Well, it wasn’t part of the Coalition agreement to alter inheritance tax – because obviously, this Government can only do what was in the Coalition agreement, and anything not included in the agreement cannot be turned into policy or law. Aside from the fact that this is patently untrue, the question then becomes why the Conservatives didn’t push for it to be part of the agreement – if it’s something they consider a “most basic human instinct” then why was it not a priority for them to seek their Coalition partners’ agreement on?

People see the children of wealthy individuals and they’re naturally angry that these kids will inherit wealth and riches they didn’t themselves earn. The immediate kick of jealousy or “injustice” leads to the vicious need to control how much these individuals receive. Thus, inheritance tax is born. Studies have concluded that given the choice, people would generally prefer to earn a smaller income, providing that income is relatively higher than most other people’s, to a larger income that is relatively lower than most other people’s. We don’t like feeling worse off. Given this, the motivation for inheritance tax can be seen in its true light – not one of the desire to help poorer children aspire to more (reinforced by a lack of ringfencing) without entrenching the richness of the well-off, but a fundamental, human need to bring other people down so we as a society feel comparatively better.

Then there’s the moral make-up of the tax itself. A man earns £1000. He then pays income tax on that money. He spends some (VAT) and saves the rest (savings are taxed). Then the man chooses to buy a house. That income-taxed, savings-taxed money, is THEN used to pay stamp duty – the third tax. By the time he’s paid his fees and finally settled into his house, bought the new items he needs to turn a house into a home (oh look, more VAT!) he then gets a lovely A5 letter falling through his letterbox onto his carpet demanding tax revenue for the council, simply for the privilege of living in this house that he has bought.  Could we make the process of buying and living in your own home any more tax-intensive? Every element of the housing process, from purchase to your death, is a taxable one.

Our man gets married, and his wife has a child. They bring up their child in that house, and when it comes to deciding what should happen to their house upon death, their choice is unanimous. Their child will receive it, the person they love most will receive all their most valuable possessions. It will set that child up in life with something more to protect them from hardship. Used well, it could provide rental income, or perhaps, should they die soon, it will pay for tuition fees for university. Alternatively, maybe the home will be where their child raises their family. When an individual gives someone their property upon death, it’s done from a place of love, and desire to do right by the people they’re responsible for. It’s an interaction solely between the giver and the receiver: that the giver has to die for the gift to be given, is an irrelevant fact. We don’t tax people for giving Christmas presents, we don’t tax them for giving birthday presents, and we shouldn’t be taxing people for giving the most important presents of all – security, comfort, sentimentality. The Government has no place around our Christmas dinner table, it has no place taking from us as we give to those we love – it’s over-extension into a field that doesn’t concern it, and insofar as this is the case, it is illegitimate.

Inheritance tax can also lead to the counter-productive situation where a person, not liquid enough to pay the tax due on the house/business they’ve just inherited, must actually sell an asset (i.e. the very thing they inherited, or perhaps their own home) simply to pay the tax due. To be forced to sell the things your parents left you, simply to get enough cash together to pay the tax bill due on it is an utterly perverse consequence of inheritance tax.

There’s a myriad of reasons to oppose inheritance tax, this is just a taster of a few: that it was part of the Conservative manifesto, that it is born out of a negative, jealous emotion not a desire to do good, that this would be the third, sometimes fourth form of taxation on the same money, that it’s natural for an individual to want to give to their loved ones upon death and so the Government are contravening on a natural human instinct by their very own admission, and that the Government have no place in a private transaction. Inheritance tax is an awful tax. It’s not the first that needs to go, but that doesn’t make it any less terrible, destructive, and invasive.

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