Why everyone hates inheritance tax, even if they'll never pay it

They say nothing is certain but death and taxes. And anything that combines the two issues is certain to cause enormous irritation.

British people are virulently opposed to paying inheritance tax (IHT). A YouGov poll last year finding that 59 per cent thought it was "unfair". Just 22 per cent thought otherwise. This rating meant it was regarded as the most unfair tax among the general public, with a smaller proportion of those surveyed feeling things like VAT (39 per cent) and air passenger (46) were unfair.

The issue of inheritance tax is electorally powerful, as George Osborne found in 2007 when he scared Gordon Brown off from an early election in 2007 by promising to raise the threshold to £1 million. So why is inheritance tax such a bugbear among voters?

The chief critique is that it is a form of "double taxation", forcing taxpayers to pay out on already taxed income once they die, leading opponents to label it a "death tax". Parents have reason to take against the idea because they will feel instinctively - as David Cameron argues today - that they should be able to leave behind as much cash as possible to their children in order to support them when they are gone. So inheritance tax means that more of their estate goes to the state than to their intended beneficiaries.

But who is liable to pay inheritance tax? The current rules surrounding IHT stipulate that it is paid if a person’s estate - comprising their property, money and possessions - is worth more than £325,000 on their death. (The person inheriting pays 40 per cent tax on the value of the estate above £325,000.)

For a tax that angers so many people, relatively few people actually pay it.

According to HM Revenue and Customs, 261,384 estates passing on death in 2012-2013 were not taxed. Only 17,917 liable for IHT. This amounted to just over 6 per cent of the total estates passed that year.

Most of the estates (8,246) hit in that year are worth between £500,000 and £1 million. However the largest number of estates passing - 81,820 in total - were safe from inheritance tax as they came between £100,000 and £200,000.

Many voters are annoyed about inheritance tax, even though very few will have to pay it. The levy, the Institute for Fiscal Studies points out, is one "with many loopholes and opportunities for avoidance through careful organization of affairs" like giving most of it away several years before death.

Only a minority of Britons are rich enough to need to avoid inheritance tax. But anyone can dream. We can all hope, dreaming that our hard work and good luck will one day make us rich enough to have to worry about IHT. It's a tax on aspiration.

The animosity sparked among the general public by taxes on the well-off isn't new, as Labour found to its cost in 1992 when it lost the general election on a platform which included a new top rate of income tax - 50p at above £40,000 a year. The Tories seized on it as part of a "tax bombshell" for the middle class, and its effect was explosive.

Labour strategist Philip Gould later said the policy proved the party had "failed to understand that the old working class was becoming a new middle class: aspiring, consuming, choosing what's best for their families".

Aspiration may have become a political cliché, but voters have shown that they like a party that won't punish them for being successful. You don't have to pay a tax to be angry about it.

Source:

www.telegraph.co.uk