A very large chunk of inheritance tax is paid out of house values. These are concentrated in SE England. Therefore inheritance tax is a tax on SE England.
Grieving families in Surrey pay more inheritance tax than Wales and Northern Ireland combined, analysis has revealed.
Residents of the home county paid £251m in inheritance tax in the 2019/20 tax year, compared with just £97m levied on inhabitants of Wales and £42m paid by people living in Northern Ireland.
So, let’s abolish it then, eh?
We can be grateful that Councillor Drakeford has limited powers. Otherwise Jeremy K. would be egging him on to get Welsh IHT up to 102% just to see how the serfs would react.
I thought I would not sully your blog with my preferred nickname for our dear Chancellor and merely try to convey it by subtler methods.
Nah, leave the IHT in place.
Much more important is the stamp duty, you want to abolish that for all values and types of property.
That way if you want to avoid it you can trade for something more suitable in Wales, or nearer to where your kids and grandkids live.
Just one more way that the South-East subsidies the rest of the freeloading regions.
Doc, it may all depend on how you do the sums. The SE gains enormous subsidies from everyone else by virtue of all the money spent in the SE on government and the hangers-on of government.
Years ago at the time of an earlier burst of SNPism the claim was repeated that England subsidised Scotland. One of the city accounting forms had an independent go at the sums and concluded that it could make the reverse argument.
Remember that the Oirish were convinced that Ireland subsidised Great Britain until they became independent and discovered that the subsidy went in the other direction. Poor dears.
I’m all for abolishing it, but highlighting that IHT is effectively a tax on the SE England isn’t quite the knock out argument to convince the rest of us…
Grieving families don’t pay inheritance tax, the dead person pays inheritance tax. The most reasonable form of inheritance tax reform *is* for grieving families to actually pay the tax, as bog standard income tax on whatever they receive.
I never understood why houses aren’t subject to CGT. Abolish inheritance tax and stamp duty, implement CGT (with allowance for increases in line with inflation). Voila, much fairer system
@RA: “ with allowance for increases in line with inflation”. That’s the bit they’ll forget to do, or temporarily pause because they want the cash, etc etc. Fiscal drag will do the rest.
The devil is always in the details.
RA
If prices go up (no fault of anyone in particular) then it becomes a drag on mobility (if you want to sell and buy something similar). Unless there is full rollover relief so that the CGT only starts to kick in later in life and/or when needing to down-size, which would be when any real benefit to the vendor arises. But then that’s perhaps not so different to IHT….
RA: Abolish inheritance tax and stamp duty, implement CGT (with allowance for increases in line with inflation)
The way to avoid CGT is to postpone realising the gain which will have the effect of encouraging people to stay put rather than move house. This will discourage youngsters from moving on to better jobs in different locations and it will discourage oldsters from moving to smaller accommodation until that accommodation is an urn.
“Increases in line with inflation” is a bit of a problem as Peter MacF says. Utility doesn’t change as your house “gains” in value. I bought my present house in my early twenties and still live here though now a grandfather. The house has increased in “value” (but not to me) by some 5000%. Bonkers but none of my doing.
The proportion of my estate to be gobbled up by IHT is greater today than on the day I took possession.
So we need different IHT thresholds in different parts of the country. A person who inherits a £325k detached house in mid-Wales is *relatively* much richer than someone who inherits a £325k flat in Guildford.
“why houses aren’t subject to CGT”: because that’s what the 60s Labour government that introduced CGT wanted.
“with allowance for increases in line with inflation” was introduced under Thatcher (by Lawson, perhaps?).
Labour – Brown, presumably – abolished it.
The CGT exemption on death: if I sell my shares the day before, bang; big tax. If I don’t and simply die, no tax. Rum, innit?
dearieme said:
“with allowance for increases in line with inflation” … Labour – Brown, presumably – abolished it.
Half true:
– Brown abolished the inflation (“indexation”) allowance, but instead had taper relief, that reduced the gain depending on how long you had owned the asset for. Not quite the same, but a nod in the right direction.
– Darling (an under-rated Chancellor, in my view) abolished taper relief, but cut the rate to 8% or 18%.
Either of those was manageable.
– Then Osborne increased the rate but without restoring any of the reliefs; that was bloody awful, but then he was.
@Rational Anarchist – “I never understood why houses aren’t subject to CGT.”
Houses are subject to CGT – just not your main residence. The reason for this is that when you move house you may need to sell your current house and buy a similar one elsewhere. This transaction does not result in you making a huge gain, regardless of the nominal value of the house, so it would be extremely unfair (and economically harmful to society) to apply CGT.
A related argument applies to gifts, including inheritances. There is no economic gain to be taxed – one person’s gain is another’s loss, so it is not sensible to tax it – not that tax rules must make sense, of course.
“Not quite the same, but a nod in the right direction.” No, a dreadful idea. It’s no biz of the government how long you’ve held it. Inflation-linking was far superior.
Anyway I’d still like to hear a good argument for no-CGT-on-death.
The reason why one’s “principal residence” was excluded from CGT was that Labour feared a revolt since the tax would have been uncollectable. Property prices, including house prices, always rise under a Labour government so every time someone moved house they would have been liable to CGT on the paper increase in the price of the one that they sold but almost always would have no spare cash to pay it [the reason for moving house is usually to get a bigger one as the family grows or having to move for work reasons which generally means a more expensive house the same size]. Trying to prosecute innocent homeowners for failing to pay money they don’t have in CGT on unreal profits solely due to inflation was something Wilson dared not do.
Of course the result of the exclusion was that inflation and the prospect of higher inflation made one’s principal residence the primary “safe haven” for any savings one had and house price inflation took off and accelerated under each subsequent Labour government (more than doubling under Tony Blair) with only occasional price falls under Conservative governments offsetting the general trend.
Consequently residential property now seems a zero-risk security for loans of any size and mortgages are determined by the ability of the would-be homeowner to pay the interest so the current housing shortage in South-East England has merely led to prices rising until enough people are priced out of the market.
If Tim had his way, prices for new houses in the South-East would swiftly halve and then those for exising ones would decline slowly (slightly faster in real terms) as owners hate to sell for less than they paid.