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Why It's Time to Scrap the Inheritance Tax

17/04/2016 19:57

The saying goes that there are just two things in life that are certain; death and taxes. The Inheritance Tax inconveniently combines both of those pretty undesirable inevitabilities in to one fundamentally unfair package - and it's time we got rid of it.

There is nothing nice about loss. The grief and mourning families go through when faced with the deaths of loved ones can be extremely traumatic. With that in mind, it seems simply wrong to take from families at times like these.

Of course, these sentimental reasons alone cannot form the basis for sound policy on taxation but they are valid nonetheless. Enthusiasts of the Inheritance Tax argue that taxing inheritance diminishes income inequality, a pertinent argument at a time where the gap between the have and the have-nots is getting wider and wider.

That being said, inheritance is money that has already been taxed, through income tax, property tax etc. This makes Inheritance Tax a double tax, an additional levy on money of which a fair portion has previously gone to the state.

This is profoundly unfair and one of the numerous reasons why the Inheritance Tax was voted the least popular in the United Kingdom. On top of this, the Inheritance Tax code is extraordinarily lengthy at almost 1,000 pages long and would take the world's fastest speaker 10 hours to read out loud, a testament to reducing and reforming the ridiculously complex tax regime in this country as a whole.

Whilst income equality continues to be an economic ill that plagues British society, taxing people twice over is not the way to rectify it. The government's cuts to Capital Gains Tax and inability to close down loopholes on giant corporations and the richest in society, who have hit the headlines for evading taxation in recent weeks, is a much more just way of remedying this issue. And, this approach would provide the bursary with far more than the Inheritance Tax could ever yield - which is a mere 0.25% of GDP by the way.

There is a case to be made that this tax is imposed to redress a society that is increasingly non-meritocratic - but this point is flawed. Surely it is conducive to a meritocratic society to allow a person to work hard, pay one lot of tax on their earnings, estate and other capital and then pass on whatever is left at the end of their life to the people closest to them?

It is an accepted instinct to provide for those closest to you. If the government comes swooping in to claim yet more money from a now deceased individual, who has worked hard for their entire life to leave for their family, how can we earnestly call this meritocratic? Where is the incentive to knuckle down and earn for your family if up to 40% of your savings are snatched from the hands of your grieving children?

Perhaps it isn't fair that scrapping this tax could lead to a string of people benefitting from the work of distant ancestors, therein lies the real argument for the Inheritance Tax promoting meritocracy - however it isn't convincing enough. Economic liberalism insists that an individual has control over their own earnings, even in death - after all, many benefits and privileges people have in life are determined purely by chance and luck.

If we are serious about giving people greater power over their own finances and futures whilst promoting meritocracy and reducing inequality then an Inheritance Tax, which is more punitive on the aspirational middle class than the slippery super-rich, is not the way to go.

Instead the government could place emphasis on a Luxury Goods Tax and by closing down tax loopholes and evasion - that is the fair way of getting the wealthiest to pay their share without squeezing the middle classes at an emotionally distressing time.

We must stop disincentivising people to earn enough to leave money to better their families' lives once they have passed. After all, this money has already been taxed once; making it liable for taxation again is deeply unfair, unnecessary and not financially justifiable. The only things certain in life are death and taxes, who knew this old adage meant that death was taxable too?

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