Robyn Vinter: 7 reasons the Tories’ inheritance tax cut is a terrible idea for the economy

Sorry… but it just is

The Conservatives have announced a cut to inheritance tax if they get into power at the general election, which effectively raises the threshold for tax to £1m.

This means people who have property worth £1m will be able to pass this on to their children without paying tax.

The £175,000 allowance will apply to those who own expensive property, tapering off to the full inheritance tax rate at £2.35m.

Sounds great? For 22,000 families, yes. For the economy, no.

1. It will cost the Treasury £1bn

The measure is set to cost the taxpayer £1bn by 2020, which some people see as handing over money to some of the wealthiest in society when it could be helping to fund schools or hospitals. The Conservatives have said it will be paid for by reducing tax relief on the pension savings of people who earn more than £150,000 – not exactly something workers want to hear while interest rates are already so low.

2. It won’t affect 90% of families

In a general election, where politicians are aiming to appeal to the most voters possible, introducing a pledge that won’t affect many people is odd. This is particularly the case at a time when economic policy is top of everyone’s agenda and could decide the election. Efforts would be better spent on thinking of ways to improve the economy for everyone, rather than a select few.

3. It will boost inequality

Inequality is increasing - we’ve all seen the headlines. One thing that contributes massively to this is the passing down of wealth from one generation to another, which creates a barrier to social mobility, according to a study carried out in January which showed descendants of wealthy people in 1858 are still much richer than the rest of the population now. This followed a report from the OECD which said economic inequality cost the UK 9% points of GDP growth between 1990 and 2010.

4. It will increase house prices

The most common complaint among children of the wealthy is that they are forced to sell a property to pay the inheritance tax bill on it. The economy, however, benefits hugely by having these properties dripping on to the market. House prices in London and the South East have been growing rapidly since the recession, making it impossible for young people to get on the property ladder under their own steam. What the region needs is a measure to calm the market, not this announcement, which the Institute for Fiscal Studies said would drive up house prices.

5. Elderly should be selling, rather than hoarding

Some elderly people are sitting on millions in assets but have virtually no income, and need a nudge to consider selling before they die. Family home or not, it doesn’t make sense for an elderly person to rattle round a massive house that they cannot afford the upkeep on, when they could be spending the money on enjoying themselves or ensuring they are properly cared for as they get older. Hoarding wealth is one way people contribute to subduing an economy as, without spending, there is no way for money to “trickle down” to those who need it (and that’s if you believe in “trickle down” economics).

6. It goes against the Tories’ notion of “hardworking families”

The Conservatives have used rewarding “hardworking families” as one of the main thrusts of their election campaign. But young families who have “done the right thing” to work hard, get a good education and a good job are shown that it doesn’t matter when a layabout from round the corner inherits £1m of family money without lifting a finger. Business inheritance tax relief does the job of rewarding people who have built up a business that they want to pass to their children. Capitalism is about giving people the opportunity to earn money and thrive on their own merits, rather than handing it to them on a plate.

7. Is there a better option?

Nobody enjoys paying tax. But in order to keep the street lights on and to make sure someone picks you up if you’re hit by a car, it’s a necessity. The fact inheritance is what’s left behind when you die makes it the perfect fund to be taxed – it’s by its very nature left over money. Surely it’s better tax is taken from money nobody needs or is using, than out of the hands of working people who are trying to do the best for themselves and their family.

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Readers' comments (2)

  • Anonymous

    There are people that have worked hard for many years and own a home worth more than £1 million. You say they haven't lifted a finger to earn this money. They have also already paid tax on the money used to purchase this property so why should they pay a second time?

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  • This is full of left-wing class envy. 'Handing over money to some of the wealtthiest in society...'' hardly equates to a fairly ordinary person living in the south-east whose house and assets total a million. And 'a layabout from around the corner inheriting a million without liifting a finger...'is likely to be a middle-aged man with two grown-up children. IHT is an evil tax intended for the very rich-which a house and assets worth a million is n't. In America it's over £3 million, and many countries have no IHT at all. It's no use stigmatising the so-called rich, whom I'd describe as no more than reasonably well-off, as they are the people who have paid taxes all their lives, including on the money tied up in their property. You cannot make the poor rich by making the rich poor.

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