there is a very simple solution to the problem, which prevents middle Britain being hit by a tax that is designed to punish the very rich: first homes should not qualify for IHT (subject to caveats such as time occupied and value to prevent abuse – you couldn’t have everyone buying mansions to die in to avoid tax)
…which is more or less what George Osborne appears to be proposing. However I didn’t consider it a priority then, and I don’t think it a priority now.
There will be lots of guff about how “insane” cutting this tax is. It’s not insane. Inheritance tax is deeply unfair, unpleasant and resented. It’s falls hardest on those who’ve not prepared for death. And it has come after big cuts to income taxes, so I’m reasonably content.
The main problem with the UK economy is for people to see property as an investment, not as consumption. This encourages people to see their homes as their main asset, and care deeply about how much it’s worth. People oppose dilution of their assets. This is why any and all development – new houses – are opposed so viciously by “the community”.
The problem isn’t inheritance tax, it’s the tendency of old people to hang around in the big family homes long after their family has flown the nest. And their family, when they come to produce grandchildren cannot have a family home because they’re all owned by the baby-boomers. Children are being brought up in flats while granny lives in the big house. And Granny’s in rude health. By the time the house gets passed on, it will be to people well on the way to being grandparents themselves.
Rather than cut inheritance tax on homes, it would make more sense to abolish stamp duty, and make the housing market more liquid. Encourage granny to downsize as soon as little Jonny and Camilla have left for university, with increases to property taxes like council tax offsetting cuts to other income taxes. Granny should take the equity in the house, and invest it in productive assets for her retirement, or use it to help Jonny or Camilla buy a house for their families.
Above all, we need more houses. And cutting inheritance tax on houses doesn’t help more of them get built. I never oppose a tax cut. And I dislike inheritance tax because it is unfair. From 2007 again
It is essentially a voluntary tax and is often described as a tax on the unlucky and the unwise. Businesses are exempt as are farms. Potentially exempt transfers can usually see to the rest, and the threshold at £285,000 [now £325,000 – transferrable] is generous. The problem is that it hits unexpected deaths harder than quiet passings in old age. Consider this: A family loses both parents in a car crash and the tax-man – as a direct result – also takes the family home. That’s not on.
I’d want to see stamp duty go, or see more income tax cuts before I cut inheritance tax. After all, Inhertiance tax is, for most people, entirely voluntary, so long as they trust their children, and don’t die unexpectedly. I see why the chancellor is doing this – UKIP have pledged to abolish inheritance tax completely and inheritance tax is wildly unpopular, even amongst people who are unlikely to pay it. This is a policy aimed squarely at the Daily Mail reader and there’s an election very shortly.