The British Inheritance Tax

The existing  British Inheritance Tax is not an inheritance tax on what is inherited or received. It is an Estate Duty-type tax on the cumulative total of what is given away or left, rather than a tax on the cumulative lifetime total of all inheritance and capital gifts received. The rates are the same whether the fortunes left are received by one person or divided and received by many people. The rates are also the same regardless of how much or how little - if anything - the beneficiaries may already have received during their lifetime by way of inheritance or capital gifts. This existing tax does nothing to encourage the wider spread of the private ownership of wealth.

For most people who pay it, the marginal rate of tax is too high. It is at 40 per cent on the amount by which the total given away during their lifetime or left when they die, including the value of their homes, exceeds £275,000 (up from £263,000 in the 2005 Budget). There are exemptions for gifts or legacies between spouses, gifts out of income and an annual £3,000 plus £250 for any recipient who does not share in the £3,000.

There is also an exemption for lifetime capital gifts given away more than seven years before people die, with the rate rising to 40 per cent for those unlucky enough to die within three years of making the gifts. This exemption mainly benefits the very wealthy who can afford to give away the capital. 

And again, for the wealthy, by scandalous, startling and outrageous contrast with most people owning modest homes, the rate of tax is 0 per cent on vast amounts of inherited business and farming assets, as well as on lifetime capital gifts.

No British Inheritance Tax at all is paid on

- lifetime capital gifts of up to as many £millions as the wealthy can afford to give away more than seven years before they die - as above

- receipt by heirs of:-

   -  all interests in unincorporated businesses, unquoted trading companies

   -  half the value of controlling shareholdings in quoted companies

   -  half the value of land, plant or machinery used in qualifying businesses

   -  all agricultural land 'in hand' of farmers

   -  half the value of landlord's tenanted land

   -  woodlands - until the timber is sold or cut

   -  Lloyd's' Names funds at Lloyds

   -  Unlisted Securities Market shares

   -  Alternative Investment Market shares

   -  half the value of capital gifts into discretionary trusts, or the full amount if within the lifetime gifts  exemption

All exemptions are unlimited in amount, subject to the assets being held for a qualifying period - normally two years. They represent a vast proportion of the countries wealth, passed down tax free from generation to generation of wealthy families, while others inherit nothing at all. All these exemptions should be abolished, and total cumulative lifetime receipts of capital gifts and inheritance, except from partners or spouses, including a British Universal Inheritance payment, should be taxed at a progressive rate, starting at 10 per cent and remaining there for most beneficiaries.

It is not just the exemptions that are a scandal: so also is the operation of the taboo and the consequent lack of general knowledge about them. To get a reasonably accurate idea of the overall picture, it is worth looking out of the window of an airplane onto the beautiful patchwork of our country. Most of the expanse of farms, businesses and woodlands you see are received tax free by those who inherit them. Inheritors of houses clustered together pay tax at 40 per cent of anything above a total of £263,000, including the house. Many others in rented houses inherit absolutely no stake at all in the country. As a result of the unlimited exemptions the rich pay nothing on £millions or £billions, while others pay the very high marginal rate of 40 per cent, encouraging tax avoidance and evasion.

No one will find out about the exemptions for businesses, majority shareholdings, agricultural land and buildings, Alternative Investment Market shares or Unlisted Securities Market shares by going to their local tax office. No leaflets there mention these exemptions. For that you have to ring the Capital Taxes Office. They will send you the relevant leaflets. Why is information about these exemptions not available in the local tax offices? Presumably because if they were more widely known about by the great majority of people who did not benefit from them they would be - as they should be - abolished.

These exemptions perpetuate huge inequalities of inheritance and therefore unnecessary inequalities of wealth. This can harm people who receive too much, particularly if received too young, and certainly harms people who receive nothing, or too little. These vast inherited tax-free £millions and £billions are quite unnecessary and counter-productive from the point of view of the incentive to work for those who receive them. They are an unnecessary root cause of very obvious and potentially dangerous inequality and anti-capitalist sentiment within each new generation.

There is an alternative to this nonsense. It is British Universal Inheritance.