Friday, Aug 24, 2007
While interest rates go up, we are also being taxed into submission.
Property Week: Conservative group calls for abolition of Inheritance Tax
One of my old gripes against this government, but the Conservative Party is suggesting an abolition of the Inheritance Tax, and other reductions, definitiely a step in the right direction ...
"A Conservative policy group has proposed abolishing Inheritance Tax and slashing corporate taxes to make the UK more economically competitive."
"The report, which is not binding on the party, also called for reduced taxes on business profits to make the economy more competitive. It said Corporation Tax, which is payable on business profits, should be reduced from 30p in the pound to 25p. It recommended that the tax for small businesses should be 20p in the pound."
Posted by fahrenheit451 @ 12:08 PM (1371 views) Add Comment
43 Comments
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1. fahrenheit451 said...
At the risk of blogging my own article, I will explain ...
Take a simple model of the economy.
- Person works for a company, is paid by that company, and buys everything from that company.
--- Personal Taxes ---
40% Tax on income (including personal NI etc) -> 60% left
17.5% VAT on all purchases -> 0.6 - (0.6 x 0.175) = 49.5% left
10% Council tax, + High rate items eg. petrol & fuel taxes, etc -> 0.495 - (0.6 x 0.1) = 43.5% left
--- Business Taxes (as a proportion of employee earnings) ---
15% Business rates -> 0.435 - (0.435 x 0.2) = 34.8% left
10% NI, other taxes -> 0.348 - (0.435 x 0.1) = 30.4% left
Therefore in this simple model Gordon Brown has taken about 70% of all earnings to pay for all Public Expenses.
Therefore the government employs 70% of the population.
Since this is blatently not true, how does the government explain this massive wastage of our Tax ???
=====
Alternatively if Tax was reduced by 1% (70% of money), there would be a corresponding 2.3% increase (based on 30% of income left) in prosperity.
And they claim that they know how to run the country ... I think not ... its a miracle we survive at all.
Oh we don't do we ... manufacturing has all but disappeared, and most other EU counties subsidise their exports to make business more competative !!!!
Boom badda boom crash ...
2. Tickock said...
It is an amazing achievement to gain popular support for such an gigantic tax break for the top 6% of the earning population and certainly takes full advantage of the fact that high house prices have started to bring your 'average Joe' into the same tax world as the average billionaire.
Why not just raise the threshold of the tax? Even up to a £1 million or something?
This would save the majority (who have worked so hard to see inflation raise the value of their estate!) from paying it, and leave the tax only for those whom it was intended - Those whom I suspect run the 'anti-death tax' campaign with the support of misguided and misinformed popular opinion, the 'super rich'.
If the vast sums of the Nations money stashed in Cayman Island bank accounts is not redistributed through inheritance tax, it never will be, and our decent into Dickensian social conditions will be rapid an inevitable.
Step in the right direction? I guess that depends where you want us to end up doesn't it?
3. mrmickey said...
Personally I think true conservatism is dead, Who is going to vote for a party that promotes self reliance and hard work combined with small government. There are now to many people who rely on the state for their income, the medicine now required to really get our economy going again is just to unpalatable for most voters
4. planning4acrash said...
Tories would want to cut inheritance tax, because most of their supporters have big estates. Why, if you get taxed on earnings, should you not be taxed on un-earned inheritance? In my view this tax is a progressive one, and you can get around it, my folks brought a cafe and a plot of land (being cultivated), which both provide them income into their retirement and are exempt from inheritance tax, being a business. So, you can have a house of 250k (above the national average) and have a multinational corporation, pass them all on with no inheritance tax. Scrap it, and an incentive to invest in business is lost (my folks have created about 6 jobs, whilst staying in a big house would have created, yes, 0 jobs). Plus, we will have to put more tax on earnings and profit (particularly for those with estates smaller than £250k), thus disincentivising wealth creation, because the Tories are talking about re-jigging tax in the favour of their supporters and have not committed to reducing the overall tax burden.
5. wage slave said...
Seeing as most peoples 'estate' is their house, and house prices have trebled since 1997, surely the inheritance tax threshold should have trebled too ?
6. Bobsto said...
Large inheritances put capital in the hands of those who probably could not have earned it themselves which is hardly a recipe for an efficient economy. The sole motive for the Tories wanting to end inheritance tax is the greed of their well off middle class supporters and this is exactly the reason why so many people still hate them.
7. planning4acrash said...
Maybe the thresholds could change, but that's a different argument to abolition, would thresholds go back down with a crash?
Like David_2004, the Tories haven't explained where the loss of revenue will be recouped and will definitely have not carried out an impact assessment other than a straw poll amongst their party members.
8. captain sensible said...
Incease the IHT threshold and you just increase the inflation of the property bubble with those fortunate enough to inherit sums currently above the tax threshold having even more to 'waste' pushing house prices up. Most of the concern about IHT will vanish once house prices return to a sustainable level and most estates once again fall under the threshold.
9. fahrenheit451 said...
Agreed, too many people rely on the state for support. If they worked for a living the tax burden would be less and the double wammy of reduced burden + less tax, would increase prosperity. Probably also change social attitudes and crime would drop as well "The devil makes work for idle hands".
And as you say, large estates are run as businesses anyway, farming (rural), housing (eg Grosvenor in London, etc), tourist (National Trust for large "private" houses & estates, etc) so they are all exempt from Inheritance Tax. The only people who get clobbered is the "average" house owner and saver.
But more than this, there is a lack of low-skilled factory type work.
And with the continuing inability to compete internationally, due to other governments (USA, etc) operating protectionist measures, plus other governments subsidising international contracts, we will never be able to operate competitively.
Would the Euro change this, only for the consumer, because if the government still failed to match import restrictions (on imported goods + migrant workers) we will continue to fail our export market. Ok so we could devalue the pound, @!%&! this would really upset the money markets !!!! And where would our cheap imports go, the cost of living, clothing, cars, electronics, would increase overnight ... But we would be able to export !!!!
Oh yes, wage inflation in China ( !!!! ), is affecting their export (& our import) markets ...
Boom badda boom ... crash
10. su said...
Most people I know who work for the government (local or national) tend to express their frustration at the amount of unnecessary spending. Is it possible to have a government who can substantially reduce the waste without damaging the service these people provide?
11. Mikexx said...
It's good to see that the Tories are would like to reduce corporation tax to widen the gap between earned income and unearned income still further.
What's wrong with inheritance tax? It certainly satisfies the criterion of an ability to pay and for ease the tax can be collected! Perhaps the threshold should be reduced? Why is it more unfair than other forms of taxation?
12. fahrenheit451 said...
PS. the comment on migrant workers, refered to restrictions on transfer of money between economies.
Also ... Europe pretends that we are all in the same economic region, blatently not true. The new European members do not buy UK exports!!!
When was the last time you saw a label "Made in UK".
A crash in the whole economy is the only way this can possibly be rectified, the only questions are:
1) When ?
2) How dramatic?
Boom badda boom ... crash
13. stillthinking said...
@su . All the people I know who work in government do nothing but pay for external private sector workers while they sit tight on their jobs watching. I must have met about 100/150 public workers in my life and I would go so far as to say don't ever employ anybody from that sector if they stayed in for more than 5 years. They will never work. I doubt very much they would put their money where their mouth is i.e. resign in protest at the pointless cost of themselves.
Perhaps they just express their frustration to pass the time when they aren't working, there is a lot of it.
14. mrmickey said...
Su yes maybe the government could employ a team of consultants to look in to this and maybe employ a Czar or two and a couple of ethnic diversity officers just in case their needed oh and not forgetting to expand the smoking awarness team as well.
15. su said...
@still thinking. There are different forms of public workers. I do have more than a little sympathy with your view of some public sector workers, but there are many others who IMO work just as hard, if not harder, than some in the private sector, e.g. our military personnel.
16. Orwell said...
Agreed with Su,
I worked as a locum lawyer in a Northern LA. The head of Legal Services knew no law and all she wanted to do was delegate everything (oh and work out race relations policies and that sort of thing). I mean what sort of incompetent is that? Plus she was on at least 40 - 50K for a LA near Manchester that is a lot of money.
17. su said...
Excess personnel are not the only wastage in public services. I stopped paying for school dinners when I discovered my child wasn't eating them. As I understand it, bucketfuls of leftover school dinners are thrown away each day. Some of these dinners are public funded and the likes of Tommy Sheridan wants all school dinners to be publically funded - "free" school meals for all!
18. fahrenheit451 said...
Perhaps we should re-introduce National Service, I like this, but ...
Anyone unemployed for more that 6 months should get a training course.
After an additional 6 months unemployed, they should get drafted for 6 months and like the French, join the Gendarmes (military), not the Police (civilian).
After yet another 6 months unemployed, do one tour of duty !!!
Only problem is what the professional soldiers would think of this ... too much wet nursing may be required to prevent politicians feelings being hurt.
19. Ah-so said...
With a typical London house now falling within the inheritance tax bracket, the level needs to be lifted. However, it should not be the estate that is taxed, but rather those that inherit, with a cap under which inheritance is not taxed; for example £200,000 per person, thus moving it into line with capital gains tax. This will mean that offspring with numerous brothers and sisters would get a greater share and it would also mean that you would not have such concentrations of wealth.
20. Swisstony said...
I pay 12.5% effective rate tax in Zug, Switzerland. One of the main reasons why I left the UK. That and high crime, council tax, etc...etc.
21. Kilinrax said...
Farenheit451, you're making an assumption that everyone agrees that National Service constitutes a useful contribution to society. Training more soldiers cost the taxpayer more money.
That's aside from the fact that, as you point out, professional soldiers tend to resent poor-quality conscripts. And that it violates the Universal Declaration of Human Rights.
22. su said...
@fahrenheit451. The Germans have national service too. Their young people have a choice of serving in the military (in non-combat areas) or they can choose to work for a longer period of time in the community. (I think the community work pays less, but don't quote me on that!)
I don't know why our govt doesn't have a similar arrangement. IMO it would be more productive than simply extending the school leaving age.
23. Ontheotherhand said...
The top 1% of income tax payers already pay 17% of ALL income tax. If these workers save money from the 59% of their earned income that the government lets them keep after 41% Tax, and they invest it wisely rather than blow it, why should the government take another slice from their family when they die?
As for this being Conservatives only looking after their own voters, I hope not since this will not win elections. They need to go for the middle ground swing voters who went for Labour 10 years ago to end sleaze, end boom and bust, and because "Things Can Only Get Better." They are after the middle income voter who's house is now in the inheritance tax bracket.
Labour has all the millions on jobseekers allowance, incapacity benefit, basic state pension, and working for the public sector already as captive voters, and yes, I'm sure the Conservatives have rich people as captive voters, but I rather think it's time we gave those that find jobs, work hard, and earn good money a go at running the country again.
24. mrmickey said...
su not to sure if i'd be happy with Vicky Pollard looking after my granny.
25. su said...
mrmickey. Don't you have faith that government officials would have the sense to place Ms Pollard with the public toilet cleaning rota rather than helping your granny into her nightie?
26. planning4acrash said...
fahrenheit451, many people think its unfair, because people will already have paid income tax on the money they used to build up their estate. But, that's the case whenever money moves from one person to another, e.g. companies pay corporation tax, then pay wages, which are taxed, which are spent on goods, that are taxed, etc. So I'm not sure why this type of "income" should be any different.
27. planning4acrash said...
The tories want to get rid of efficiency targets imposed on local government, which link their performance to the amount of funding they receive. This alone would reduce the productivity of local government significantly, a lack of bureacracy can make private business more efficient, but it is required, in the absence of market forces to make government efficient.
For example, I, as a planner, am driven to make decisions within the statutory 8 and 13 week deadlines because my department only gets central government funding if it achieves that target. Take away the target and we would become inefficient again.
So, the Tories, by applying a private model to the public sector show weaknesses in their bias towards the private sector. At the moment I would only trust Labour with public services.
28. waitingfor hpc said...
if you keep IH tax, there should be no threshold. All should pay it based on there tax band. For every penny they get and 2nd homes should be taxed on the growth as income as well.
29. su said...
@waitingfor. Income tax has a threshold, so it seems logical to me to have a threshold for IHT if it is going to be kept. The question is more about what limit the threshold should be set at.
30. Beingjdc said...
So you want the children people who have benefitted from rampant HPI to keep more of their luck-gotten gains? Great idea... they'll only decide to hang on to the property and BTL it, I hope you know.
31. Orwell said...
It is the political implications of abolition. As New Labour are still theoretically supposed to be socialist....
It was first introduced in 1905 by the Liberals by the way and affected many many fewer houses and estates...
32. planning4acrash said...
su, same applies to stamp duty and Council tax, governments just don't bother with that kind of thing. A lower threshold is progressive because poor people don't pay.
33. Scottow said...
Did anyone read the article re stroke victims in the FT. It noted that care in England is the worst in Europe even though outlays are the same as the European average. The reason is high spending on wages of doctors and outlays on hospital buildings instead of drugs and medical equipment as in Europe. You can draw your own conclusions.
A long time ago British Railways found out that the average railwayman preferred to work in an ineffiicient business rather than an efficient one. Why? More money for less work.
No doubt that's how the average GP feels. That's why people in England don't want to pay tax.
34. fahrenheit451 said...
@su
Couldn't help laughing, love to see some hoody sorting out traffic offences, or carrying out anti-terrorist raids. Not sure it would work, but there again the old addage "set a thief to catch a thief"
@planning4acrash
The only problem with Inheritace Tax, is that it will never hit the wealthy anyway.
They employ solicitors and lawyers to stop that, and if its turned into a business (see your own words item 4) it all goes of to another tax area.
And if you give it away as a gift, it escapes completely. If you've got so much wealth to be taxed by GBH that would make a difference, it soon vanishes, leaving only what you need to live on, & thus the only persons it will affect are the ordinary person anyway.
===
The main problem is how to stop the government wasting so much. How do they account for 70% of the UK National turnover and still claim that they need more ... It's unbelievable.
35. su said...
@fahrenheit
Maybe you've seen it already! The Army recruits all sorts! :)
36. Baudot said...
Come on Mr Brown, stop fiddling abour with inheritance tax. Please hurry up bring it up to the 100% rate it socially justifiably should be.
After all, why shouldn't the children of the wealthy have to make their own way in the world just as much as children born of poor parents.
37. John Squire said...
On the understanding that tax has got to be paid by someone.Would it be fair if a person working cleaning toilets alll day 5 days a week for 200 pounds a week,had to pay more tax so that a person who earns 1,000 pounds a week and already owns a nice house can get his dead mothers house without paying any tax
38. planning4acrash said...
Farenheit, at least the rich are forced to pass on the wealth or invest it in business to avoid the tax. Why else does the Prince of Wales have business interests? Because he doesn't want his estate sliced and diced by the chancellor. At least his wealth is creating jobs and being put towards charitable aims. I doubt he'd be so committed if it wasn't for inheritance tax. It would just go into fine art, wine and property otherwise, me thinks.
39. Dude said...
It makes me laugh. Everyone squeals if inheritance tax affects them, and it only is because of high house prices. What if HPC happens? Imagine you have increased the threshold. All of a sudden, a load of people are instantly taken out of the tax. Also, what if you happen to still live in Burnley? (A BBC survey showed this is one of the fastest shrinking towns in the UK.) You've probably never had a sniff at IHT.
Remember, IHT means you get nearly £300k of *untaxed* income. You get a third of a millon pounds before they start taking any tax! That is far too high. In my view they should make the tax system fairer all round -- increase income tax and reduce indirect taxation. They won't, because the country is full of ignorant people who can't see that although you may get less in your wage packet the cost of goods would also come down. (A tax on insurance premiums, for example; that makes me laugh too!)
40. su said...
@p4c
You've convinced me of the benefits of this tax, but I would still like the threshold to be raised a bit. I've got a family and can't afford a big enough house to turn into a business. (I don't suppose being self-employed and working from home counts, does it?) But I'd love to eventually buy a house which would increase in value so I've got something decent to pass on when I finally go. (mother's instinct to protect & look after offspring, even when they've grown & flown)
41. su said...
I've just remembered! A previous elderly neighbour sold his house for £1 to his offspring who then moved in with him. Would this be a legal way of avoiding Inheritance tax?
42. Mark said...
it is just plain robbery, taxing tax you have already paid...
43. Pecker said...
Su - has to be at a sensible market value