In 1986, the Inheritance Tax was introduced which replaced the capital transfer tax. In short, it is a tax levied on property and money acquired by gift or inheritance and is championed by the left wing of politics as a way to make the playing field more equal, despite prominent political figures, such as Ed Miliband, being accused of attempting to avoid Inheritance Tax. The socialist principle of the inheritance tax can easily be understood as a way to redistribute money from the wealthiest in society to the least wealthy in society. However, this does not work in practice for it deprives the inheritor of their legal and moral right to inherit the full sum bequeathed to them by the deceased, who has amassed their wealth over their lifetime through labour and sacrifice.
The current Inheritance Tax is only paid if an individual person's estate is worth in excess of £325,000, this is known as the "Inheritance Tax threshold". Anything in excess of the threshold is taxed at a rate of 40 percent. In June of 2013 is was revealed in a House of Commons library document, standard note SN93, that in the period of 2011 to 2012 the funds raise from Inheritance Tax was a total of £2.9 billion. The same document also estimated that for the period of 2013 to 2014 a further £3.3 billion would be raised through the tax, in fact in the period of 2013 to 2014 a record £3.4 billion was amassed representing a six-year high and was the most raised since 2007.
The proposal for raising the threshold to £1 million might be argued for, as was done so by the Conservative Party prior to the 2010 election. Such a proposal would be more economically fair and commonsensical. A think tank's calculations highlighted that Treasury receipts from inheritance tax would have been just £800m in the period of 2010 to 2011 had the threshold been £1m, 70 percent lower than the £2.6bn actually generated. It would have reduced the numbers paying the tax by three-quarters from 2.8 percent of deaths to 0.7 percent of deaths. The reports authors, Stuart Adam and Carl Emmerson, said "It would simplify the tax system and get rid of an ineffective and unpopular tax which can be criticised in any case as a source of double taxation in cases where bequests are financed from earnings that have already been taxed".
I believe the Inheritance Tax should be abolished all together. An article by Merryn Somerset Webb of the Financial Times particularly highlighted that it might be best to treat inheritance as unearned income and tax it at the same rate as earned income, but I disagree for similar reasons and concerns that I have raised in previous articles, chiefly my article Concerning the Introduction of Flat Tax.
Inheritance Tax reduces an inheritor's ability to invest in the economy directly through investments in the market by the purchasing of goods and property, which are taxed through levies such as VAT. By directly removing this ability from the inheritor, the funds raised are then directly lost to inefficient Government spending projects and budgets, such as the current Foreign Aid which currently receives a £11.4 billion legal commitment despite drastically needing reform.
The first records post the introduction of Value Added Tax (VAT) in 1973 showed that in the period running from 1978 to 1979 a total of £4.9 billion, equal to £24.5 billion today, was raised through VAT. This figure represented 7 percent of all funds raised. In the period running from 2011 to 2012 VAT raised £83.5 billion and represented 14 percent of all funds raised and is set to rise to £120.4 billion in the period running from 2016 to 2017 representing an equal 14 percent of all Government raised funds.
By abolishing Inheritance Tax the government would not lose the sum total of all funds raised through the tax as it would instead be raised through VAT. This system is fairer as the rate is tied to the sale of goods and services and it is commonsensical that those with more disposable income spend more. This inevitably would benefit the economy as a whole and can be seen a major theme in Margret Thatcher's policies which saw the reduction of inflation, growth in home ownership and growth in GDP.
The Inheritance Tax is also unfavorable morally for tax has already been paid by the deceased on the elements which comprised their estate in the form of other taxes. Though left wing supporters commonly advocate the Inheritance Tax, most strongly to those who support Marxist values, they ignore the fact that there is no moral ground supporting that it's morally acceptable. The highest earners are already taxed on their income as all earners are. The richest 3,000 earns, for example, contribute 4.2 percent of the total Government revenue raised from income tax, which is equal to the bottom 9 million earners contributions.
It is for such reasons that the proposal for the abolishment of the Inheritance Tax is well founded, morally permissible and the only direction that we can take to create an economically and socially fairer society. It is the only solution.