Voters in the parliamentary seat of one of Labour’s most prominent left-wing MPs are least supportive of inheritance tax, a new study has revealed.
The west London seat of Hayes and Harlington held by Labour MP John McDonnell, who was shadow chancellor under Jeremy Corbyn, was identified as the most anti-wealth tax constituency in the UK.
Only a third of Labour supporters think inheritance tax – which is levied on estates at 40pc on assets over £325,000 – is fair, according to a survey of almost 3,500 voters carried out in October of last year. By comparison two thirds thought income tax and National Insurance were fair, suggesting respondents preferred to be taxed on income rather than by wealth.
It’s entirely true – in theory at least – that inheritance tax should be swingeing. Why should people gain a chunk of cash just because of who their parents were? Meritocracy militates against the very idea.
Except, well, there are a lot of things that might be true in theory. The labour theory of value for example. It’s certainly constructable – it is the transformation achieved by human labour which produces value, therefore that labour should gain that value. But this fails because humans don’t value things in that manner. A human looks at something and decides whether it is of value to them, in those circumstances. The same individual will value the same things differently at different times. Different humans will value the same things differently at the same time. Value is subjective from the consumer that is. It’s simply not something that correlates with the labour input.
So too with inheritance tax. Sure, we can construct theories where it’s the fairest of them all. But actual humans really, really, hate it. As with LVT it’s just not a useful construct when dealing with our own species.
This wonky mug took me *ages* to make, I should be paid more for it than those things churned out at dozens a minute. Lessee, four days slaving over a wheel, that’s £500 please. And my MOT only took 30 minutes, how DARE the grease monkey charge me 80 quid.
Taxes on wealth encourage consumption and where, as in the former East Bloc, consumption was constrained through lack of things to consume, the incentive to earn was reduced.
People who live in an area with expensive houses (average for Hayes and Harlington is north of £400K) in ‘we don’t like inheritance tax’ shocker……………..one suspects that sort of house price range is the sweet spot for people who get hit by IHT, because when you get into the really expensive areas where houses cost millions the owners have much more ability to avoid IHT. So they don’t care about it. Its the lower middling wealthy, especially those with most of the wealth tied up in the house they live in who really hate IHT.
Thank you for telling me why Bjelke’s abolition of Queensland’s inheritance tax went through without trouble. But when he drove a stake through the heart of the petrol tax, the High Court deemed it a restraint on interstate trade. Which is of course forbidden by the Constitution.
PS. In case you’re wondering Bjelke-Petersen, alias New Zealand’s Revenge, was a ghastly right wing fascist Premier of Qld in my youth. His policy was to give the miners open slather in return for hefty royalties, and use the loot to abolish state taxes.
A married couple can leave up to £1m to their children, tax-free; thanks to the Residence Nil-Rate Band (RNRB). Perhaps the area has changed since I last looked, but I can’t imagine Hayes & Harlington having many £1m+ houses.
Actual humans prefer to pass the fruit of their labour on to the fruit of their loins rather than the fruit of other humans’ loins.
Subject to rules about “gifts with reservation” and the need to survive for another seven years it’s quite easy to get around IHT.
As Roy Jenkins said, IHT is paid by people who dislike and mistrust their children more than they do the government.
“Its the lower middling wealthy, especially those with most of the wealth tied up in the house they live in who really hate IHT.”
Yeah this is rightly seen as the (really) rich kicking away the ladder to keep the (almost) rich from getting up there.
The really rich can always get around this stuff.
Not having produced any offspring the subject is irrelevant. Have always assumed, however, that family remains our primary responsibility. Observing friends and colleagues, inheritance appears bequeathed long before our eventual demise – quality of children’s education, including further education. Buying the mites their first motor vehicle, assisting them into gainful employment and onto the housing ladder…subsequently subsidising the grandchildren’s nursery/school/university fees. Anything else is icing on the cake.
@Andrew M – maybe it’s a lack of married couples which puts far more of the houses into IHTs range?
I think there’s another factor involved here. In a constituency which returns a nasty politics-of-envy champion like McDonnell many people probably regard salary differentials as unearned wealth. On the other hand they will regard however “smart” or “careful” they were with the money afterwards as being all down to their own virtue. Even if the “smart” is largely taking advantage of the ridiculous lack of housebuilding in this country.
“It’s entirely true – in theory at least – that inheritance tax should be swingeing. Why should people gain a chunk of cash just because of who their parents were?”
What Frank and Bernie said. Really not rocket science…
“Why should people gain a chunk of cash just because of who their parents were?”
Because it is their parents’ money, it belongs to them. Taking it from them just because you can is still theft no matter how you try to justify it.
Clearly none of you have ever had to fill in the HMRC forms in order to obtain Probate. After my mother-in-law died I had to complete 140-odd pages for an estate *that was below the IHT threshhold*!
That the very rich can employ specialist tax advisers to legally avoid IHT (e.g. the Duke of Westminster doesn’t have any right to the capital in the family trust so that is excluded from IHT calculation on his death) while the middle-class have to pay it (and often overpay because the average John Bull cannot find his way around the obstacle course) *is* unfair.
IHT is a disincentive to save and, therefore, one of the reasons for the lack of investment in the UK and lower prosperity.
“the Duke of Westminster doesn’t have any right to the capital in the family trust so that is excluded from IHT calculation on his death”: quite right too. It’s not his.
On the other hand it’s presumably paying a 6% tax on capital every ten years, as Trusts do when they are worth more than the IHT nil rate band, currently £325k. (Unless the super duper rich have access to trusts that can avoid the taxes that lesser trusts pay.)
Trusts aren’t much use as a way of avoiding tax but they are a way to ensure that a feckless heir can’t destroy the family wealth in a single generation.
“On the other hand it’s presumably paying a 6% tax on capital every ten years, as Trusts do when they are worth more than the IHT nil rate band”
You don’t pay 6% on the capital. You pay 6% on the increase in the value of the capital over the last 10 years, minus any IHT exemptions that apply, such as for agricultural land and business assets. Ergo as one suspects that a great deal of the DoW Trust assets are ones that benefit from one or other of those reliefs it would only pay 6% on a fraction of the whole value of the Trust. I’m a beneficiary of a family Trust that owns farmland worth several million, the last 10 year charge was a couple of thousand pounds. As I said, the really wealthy don’t pay IHT, nor do the poor, its the unlucky buggers in the middle who get caned.
@Jim, but surely the bulk of the wealth of the Westminster trusts is likely to be urban property. That won’t get Agricultural Property Relief, will it? Do property assets get Business Property Relief?
Anyway, to your major point – “You pay 6% on the increase in the value of the capital over the last 10 years”
No, that’s not what I read: “Broadly, on each 10 year anniversary the trust is taxed on the value of the trust less the nil rate band available to the trust. The rate they pay on this excess is 6%” Source: https://techzone.abrdn.com/public/iht-est-plan/Tech-guide-Tax-of-discre-trust#anchor_4
This HMRC piece is unskilfully written but it does seem to agree with the point made in the abrdn piece. https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm4208
Thus in the HMRC example a trust of value £450k has a nil rate band of effectively £275k (because the max of £325k has had £50k subtracted because of “chargeable lifetime transfers totalling £50,000” made within the seven years before the trust was set up).
Therefore the tax to pay is (£450k – £275k) x 0.06 = £10,500 which is HMRC’s answer after a round-the-houses calculation that introduced a little rounding error.
I can’t see how you’ve persuaded yourself that the 6% tax applies only to growth in assets. Are you perhaps dealing with a trust set up under old rules, or a trust different from a modern discretionary trust?
“I can’t see how you’ve persuaded yourself that the 6% tax applies only to growth in assets. Are you perhaps dealing with a trust set up under old rules, or a trust different from a modern discretionary trust?”
Thats what my accountant told me, or at least I thought he did, perhaps my memory has failed me. Its all way above my pay grade certainly. Anyway my point was that you don’t pay 6% on the assets, in most cases. You pay a fraction of that, maybe even zero, if all the assets attract APR and BPR. In your example the charge is just over 2% of the assets, and thats one without any IHT reliefs applying.
The Duke (or rather his Trust) is one of the largest agricultural land owners in the country, so most of that would get APR.
“The Duke (or rather his Trust)”: it can’t be “his” trust because then it wouldn’t be discretionary. No doubt the trustees have a list of beneficiaries to whom they can choose to distribute income and appoint capital according to the trust deeds and their own whims. If they act on His Grace’s instructions then HMRC could take them to court to prove that they are a “sham” trust. (Or so I understand.)
Anyway, how do these rich families cope with the fact that trusts have finite lives (except in Scotland)? After 80 years (more recently 125 years) the trust becomes kaput. What then?
The Grosvenor family trust predates some of the rules that you are citing, not all of which are retrospective
“it can’t be “his” trust because then it wouldn’t be discretionary.”
You can be both a beneficiary and trustee of a trust, I am one such. So the current Duke could have a good deal of input into what the Trust does, so to some extent it is ‘his’ Trust. You can also be a settlor and a trustee, my late father was that. What you can’t be is a settlor and a beneficiary.
“What you can’t be is a settlor and a beneficiary.” You can in the special case of inheriting moolah and writing a Deed of Variation to put the money in trust for various persons including yourself. You can then be settlor (for income tax and CGT purposes), beneficiary, and trustee.
“so to some extent it is ‘his’ Trust.” That won’t wash: you cannot be a sole trustee of a discretionary trust. Moreover every trustee has power of veto over trustees’ resolutions. And beneficiaries have the right to take trustees to court if they think there’s finagling going on.
“not all of which are retrospective”: enforcing a limited life on trusts is old law – is the Grosvenor trust old enough to last forever? Indeed, was the introduction of limited life retrospective? The general topic is called “Rule against perpetuities”.