Robbie Low on death and taxes
Here’s my advice to those who die
Beware the pennies on your eyes!
“Cause I’m the taxman —
and you’re working for no-one but me.”
The lines are from a 1966 Beatles song. The Fab Four had gone from working class lads in the Labour heartlands of Liverpool to being the most celebrated beneficiaries of free market capitalism. Suddenly they were rich and how different the world looked — not least the demands from the Inland Revenue. Much the same consciousness is beginning to dawn upon the British electorate because, on current trends, the vast majority of us will also end up as top rate taxpayers.
‘How so?’, I hear you cry and the more left wing among you may add, “How marvellous!”. The answer to the first part is simply the astonishing rise in property prices and the rapacious nature of current death duties or Inheritance Tax (IHT). The response to the second part is the subject of this essay.
When Death Duties were first levied it was inconceivable that they would affect ordinary people. They were a socialistic device to break up the great estates and redistribute wealth from as far back as the Norman settlement. Along with the terrible consequences of the First World War, they were extraordinarily successful at first. Indeed two close consecutive or untimely deaths were often enough to fold up the smaller estates. Whether it was better to be owned by a distant institution, into whose hands the estates increasingly fell, rather than a resident landlord is a question there is no-one now left alive to answer. The tax was, and remains, not a tax on labour or interest or profit but a direct assault on capital devised for a different age, a different target and a different purpose. Today few would argue for unbridled capitalism but in a system whose enormous prosperity has been predicated on savings/property/pensions/investment i.e. capital, attacks on capital need to be of the order of wise pruning rather than wholesale clearance and disincentive. Enthusiasts for this latter socialistic formula will find little to comfort them in regimes where their philosophy has held sway. Almost all have ended in a ghastly permutation of totalitarianism, economic collapse and mass deprivation.
The problem with Inheritance Tax as it currently stands is that it is economically counterproductive, partial, punitive and unjust and hence immoral. Though its full force will be delayed by actuarial reality, it will shortly encompass the majority of ordinary families in the kingdom. The reason for
this is the rampant property price boom of the last five years. While the ordinary householder’s notional capital has more than doubled, he is in practice no better off. He must live somewhere and equivalent properties are no cheaper than his own and increasingly out of the range of his children. The gainers are the estate agents, the lawyers and accountants, the local authority and the Inland Revenue who all take an increasingly large share of his major asset, his home, through fees, Council Tax, Stamp Duty and finally Inheritance Tax, If and when he can no longer live on his own, contrary to the decision of a Royal Commission, his National Insurance contributions will not take care of him (except in Scotland) but his estate (his house) can be plundered. Bearing in mind that the householder has already paid tax on the income that bought the house and more tax on the work done inside it, the additional tax becomes a tax on a tax on a tax. Such a fiscal system is plainly immoral. It also acts as a severe disincentive to stewardship, saving, planning and personal generosity.
The biggest irony of the present regime was best summed up by the late Roy Jenkins, a former Labour Chancellor, in a knowing aside, when he described IHT as a “voluntary tax”. What he was signalling was an extraordinary reverse in its effects. Designed to rob the rich it is now set increasingly to rob the ordinary working man. The rich, by and large, avoid it by a Byzantine series of legal dodges, trust funds, offshore holdings etc. etc. I confidently predict, that when most of this prosperous Cabinet pop their clogs they will pay less tax than your average granny. The poor will increasingly pay what the rich avoid.
Because of the disproportionate property element the tax is also increasingly a regional tax. It costs considerably more to buy a house in Croydon than in Carlisle or Camelford. You will pay correspondingly more for this doubtful privilege when you die.
There is a further twist to all this – the pensions crisis. Years of difficult stock markets, massive annual Government raids on pension funds, collapse of final salary schemes, ageing population, declining birth rate all spell financial disaster. (Not for MPs and state employees however whose pensions our declining income is pledged to maintain ever upward). Here, we are told is a major incentive to save. But is it? If I were able, and I’m not, to squirrel away £200,000 for a pension pot, the net resulting income after tax, Council Tax and utility charges would give me £45 p.w. The moment I died such savings allied to an average house price would leave my children with a tax bill of £80,000
Why would I bother? I have no ambition to be a top rate taxpayer. The moral of all this, if so it can be described, is lie back and let the state do it for you. The more effort I make myself apparently the greater the penalties will be.
Unsurprisingly, behind this immoral and destructive tax is an alien philosophy. It is a belief that all things belong to the State, should return to the State and are best managed by the State. As the unchecked State historically has insatiable appetites and few marks for efficient stewardship this is alarming. It is also plain contrary to the health of the only political and social unit created by God — the family. Patrimony is a good Biblical principle and I see no reason why the little I have earned, on which I have paid several taxes and annual tithes, should not pass to my children. It would make them less dependent on the State and enable the State to concentrate on the truly needy. For the State to dictate to its citizens to whom, when, how, where and why they may make gifts of their lawfully earned money is both intrusive and offensive.
Last month, in the Guardian, Joan Bakewell, the libertarian TV. personality, lauded Inheritance Tax declaring that she was a ‘skinny’ (Spend the Kids Inheritance Now). She is neither likely to die on welfare or, lawyers advising, pay much tax. William Ewart Gladstone, in contrast, the greatest British Chancellor, philosopher, philanthropist, liberal economist and profound Christian thinker cut taxes to the rallying cry, ‘Let the wealth of the nation fructify in the pockets of the people.’
When the next election comes and the party hacks ask you to vote them into a high salary and luxurious pension, tell them: “I will only vote for a candidate who is dedicated to the repeal of grave robbery and the end of the looting of the family home.’
Robbie Low lives in Cornwall.