Author Topic: Abolish Inheritance Tax  (Read 274 times)

Offline RandBlade

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Abolish Inheritance Tax
« on: January 04, 2005, 09:35:56 PM »
In this country, we have an 'inheritance tax', which means that if a person dies and their estate* is worth more than £250,000(€354k, $476k) then the top rate of income tax (40%) is charged on the entire estate.

* The estate includes all assets that the deceased owned, including for example property, shares and cash, but does not include that which is left to a husband/wife or the royal estates of the nobility.

This may sound reasonable at first glance, especially to those of a socialist bent, a quarter of a million is a lot of money surely so it is only charged on the rich and the income is not earned by wages so it should be taxed are the two main arguments for it. Both are more or less flawed, especially the first.

A quarter of a million pounds (if the dollar keeps falling then it will soon be a half a million dollars for those overseas) would be a lot of money to hold in cash. However it is not cash that is taxed, but the estate. The average house price in the UK is approximately half that all by itself. So anyone with an average house will be halfway there. However house prices are not average, anyone who lives in the South-East, especially around London, will face house prices of over a quarter of a million for just very small homes. A three bedroomed semi in London will cost over a quarter of a million and the people who live in that are frequently by no means rich. Poor families who bought their cheap Council House in the eighties when they were allowed to at last will find their homes suddenly bringing their estate over this mark.

And if a property brings your estate to a quarter of a million plus, then 40% is charged on everything. Not just that over the quarter of a million mark, but the entire estate, meaning a minimum of £100,000 lump-sum tax hit for everyone effected, and that does come out of cash.

If a family has lived in a home for generations and its value suddenly rises, as has happened over the past few years to thousands of families, then if the parents die and leave the family home to their children, then the children will suddenly have to find £100,000 in cash to continue living in their own home. Many families affected by this could never dream of having found £100,000 in cash in one go.

And the rich have ways of avoiding taxation, this is inevitable, but there are few forms of taxation that are more avoided by the very rich than this one. The tax raises only a tiny percentage of the Exchequers coffers and that is because of how commonly avoided it is and always will be. Without fancy accountants there is one simple way to avoid it though - gifting the estate, ie the house, to those it would be inherited by at least 7 years before death. If this is done, no tax is paid, but if this is not done, death occurs within seven years of the gift being made then the tax is due. And why on earth should a retired old couple who've possibly spent their lives paying off a mortgage of their home they've lived in for decades, be forced to give the deeds to the home to their children at least seven years before they expect to die?

The law is absurd. It is ridiculous that anyone with £249,999.99 pays not a penny while someone with £250,000 pays £100,000. It is obscene to put pressure on old people to give away their homes before they die. It is foolhardy to expect people whose homes are simply nominally worth a lot to raise a lot of cash overnight. It is nonsense that poor, run-down ex-Council houses in the South are taxed while mansions in the north are not. And it is disgusting that those who are in mourning and grief for lost loved ones who have enough to deal with should face a bill on top for hundreds of thousands that could chuck them out of the family home too.

This silly tax should not be tinkered with, it should be abolished outright.
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Offline Ranges

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Abolish Inheritance Tax
« Reply #1 on: January 04, 2005, 09:52:15 PM »
This really sounds to me like the concept isnt necessarily wrong, uncomfortable yes, but not wrong..

The fact that rich people evade most taxes because they have the money to hire the good consultants is the bane of all tax paying, and all non flatrated taxes. This has nothing in specific to do with inheritance taxes, and should be taken care of on a broader basis, not just law by law, tax by tax. It's a fundamental problem of taxation in a capitalist society, i'm afraid.

As for inheritance taxes, non-liquid assets should be taxed the moment they are made liquid; in other words (to make sure i didnt mess up my english :P) when they are sold.

That should take care of the pain for most less wealthy, and still allow the state an income.

The one argument i have against inheritance tax is very simple: tax has already been paid over the items involved. So taxing it again is unfair.

Of course most things are taxed a hundred times over before they even reach the stores, so that argument in itself is rather weak.
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Offline RandBlade

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Abolish Inheritance Tax
« Reply #2 on: January 05, 2005, 12:32:23 PM »
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The fact that rich people evade most taxes because they have the money to hire the good consultants is the bane of all tax paying, and all non flatrated taxes. This has nothing in specific to do with inheritance taxes, and should be taken care of on a broader basis, not just law by law, tax by tax. It's a fundamental problem of taxation in a capitalist society, i'm afraid.
An element of avoidance is inevitable, I agree. However, as you said, this is more inevitable in non-flat-rate taxes. There is no tax I can think of less flat-rate than charging 0% on estates < £250,000 and 40% on the entire estate above £250,000. For general income tax you pay in the UK 0% for the first stage of your income(eg ~£0-£4400), 22% on the income earned in the second stage (eg £4400-£21000) and 40% on all income earned above that. That is a so-called 'progressive' tax and is certainly not flat rate, however the key point is that if you earn above the 40% threshold then only the income above that 40% threshold is taken at that rate, the income below that threshold is taken at its relevant rate. Non flat tax rates are meant to be 'kinked', you can draw a graph of tax taken and at a certain point there is a kink but it is continous. Inheritance tax is not kinked, it is broken, receive an extra  penny and you pay £100,000 for that penny.
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As for inheritance taxes, non-liquid assets should be taxed the moment they are made liquid; in other words (to make sure i didnt mess up my english :P) when they are sold.
We already have 'stamp duty' which taxes at 4% of the sale value of the house, whenever it is sold. Besides, when people sell a house they still require to buy a new one. If you introduce a 44% tax for moving homes then you could essentially force those on a lower income to stay in the same home for life, which would cause a devastatingly sclerotic impact on labour market flexibilty and hence the entire economy. How many people will move if a tax is taken at 44% if they do?
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That should take care of the pain for most less wealthy, and still allow the state an income.
The state can and does get its income through other means, this provides a tiny proportion of it. To put it into context, the entire inheritance bill did not come anywhere near covering the cost of our involvement in Iraq last year.
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The one argument i have against inheritance tax is very simple: tax has already been paid over the items involved. So taxing it again is unfair.

Of course most things are taxed a hundred times over before they even reach the stores, so that argument in itself is rather weak.
I agree and hence I did not make that argument :p
In the Arab world, women get stoned when they commit adultery. In the West, women commit adultery when they get stoned.

If god is that judgmental and that un-compassionate, he can go fuck himself anyway. ~ Kat