Monday, April 03, 2006

Inheritance Tax, or the predicament of being middle class

I think I've always hated Inheritance Tax. The idea that the Government should remove 40% of your saved wealth because you've died seems to add insult to injury and conjures up images of widows being mugged on the way home from the church. This feeling was given some more visceral force when I read the case (in 1945 I think) where a father and son were killed in the same car crash, and it was deemed that the son had died 30 seconds after the father, in order that IHT could be charged twice.

There are others, of course, who hold different views. The attraction for people like this of IHT is precisely that, by taxing the cascade of wealth through the generations, a fairer society is reached. No inherited wealth can be regarded as earned, the argument goes, and therefore is undeserved and should be removed.

Personally I dislike all forms of taxation. This doesn't of course mean that I regard taxation as inherently immoral - merely that I dislike having money taken to pay for services that I don't use. This, fortunately, is not a position that I expect to be in for all that much longer. For it is an unfortunate fact that the tax system in the UK is now so complicated that only tax specialists and those who earn enough to afford them can understand. Nigel Lawson said, famously that taxes should be clear, low and compulsory. The current system is batting 0/3.

So the rich don't pay tax - or at least as much as they might if they didn't manage it. Instead they instruct lawyers and accountants to find ways through, ways both anticipated by the Treasury (such as increasing pension payments) and not.

These last run the gamut from the amusing to the desperately complex. Among the latter are the various offshore trusts so popular with the Labour Party, which are basically a vast game of pass the parcel. Among the former are such wheezes as forming a company in order to pay your nanny, thus avoiding paying so much NI by using the small companies tax break - Whoopee!

None of these schemes last long - but they don't have to, another one will soon be along. The reason for this is simple. There is a battle of minds between Treasury lawyers and City lawyers, and the ones in the City are cleverer and work harder. They also care more - they have to earn their money - and will therefore always find holes in a tax structure as mind-bogglingly complicated as this one.

So the only people who end up paying the full whack of tax are those who can't afford a tax adviser. These days, since it's become damn near impossible to fill in a tax return without consulting someone, this basically means the middle classes, especially since the threshold is only £325,000 these days - the price of a two-bed flat in London.

2 Comments:

Blogger The Pedant-General in Ordinary said...

Tim,

Glad that you have returned safely from the slopes. No breakages I assume.

Two things:
1) Self Assessment is a doddle for your average middle class type. The vast, nay overwhelming, majority of tax is collected at source. you do need to file things like payslips to have the data to hand but, unless you are nulabour minister and hence have a bewildering array of blind trusts etc., the form is really very simple.

2) Inheritance tax and car crashes: Get a will. If you are in the inheritance tax bracket - that is with assets of >£325k - I fail to see that the lawyer's fee of, say, £150 is not a spectacularly good investment to avoid dying intestate.

This is basic stuff - the car crash example is simply poor planning. It is schoolboy stuff to have clauses to determine what happens if a major beneficiary dies within a short time after your death. ("If beneficiary 1 does not survive for more than 30 days after my death, property is to go to beneficiary 2....")

An analogy: you are an author. you are writing a blockbuster novel for which a publisher has already agreed to pay you a huge sum on delivery of the manuscript. You are writing on your laptop.

Do you take regular backups? If not, and you lose it, you are a mug. Pure and simple.

A will is the equivalent of a backup for inheritance tax. It costs almost nothing in comparison to the costs of not doing it and it can't be done retrospectively.

PG

10:41 am  
Blogger Floreat Aula said...

PG - I think you miss the point

My reading of the post is an issue with the scale of IHT - making a will is no defence against wholesale robbery of taxed income which prevents 'wealth cascading down the generations'.

To do that you need to engage in complex planning which is regularly reviewed and proofed against regulation changes - by no means possible as the Brownian Motion makes his changes retrospective.

5:07 pm  

Post a Comment

Subscribe to Post Comments [Atom]

Links to this post:

Create a Link

<< Home