Residential care for the elderly
The enormous house price inflation the UK has witnessed since Labour took office has created large windfall gains for homeowners, gains which decline the more recently they purchased their house. The generation, then, that is likely to die in the next 20-30 years has been the biggest winner, and it seems Tory policy is to do anything to let them, or more accurately their children, keep hold of those gains. First we had plans for cuts in inheritance tax, at the expense of higher taxes elsewhere, and now we have suggestions of
free (after a time limit) residential care for elderly people who can't look after themselves (and neither can/will their children).
I can see arguments in favour of this policy, but more against it. As normal it will mean higher taxes elsewhere, i.e. mainly on people aged 20-40 today. I would suggest a compromise in which the cost can be deferred until after death, and come in the form of a special inheritance tax (which otherwise won't be levied given the tax changes).
Labels: inheritance tax, Taxation
Inheritance Tax proposal
The inheritance tax threshold is to rise to £1m. The proposal will cost around £4bn, which is going to be funded by an annual levy on the right to declare yourself 'non-domiciled' for tax purposes.
The proposal is very skewed towards the rich. In 2004/2005, 5.4%, or 32,000, estates paid inheritance tax, which raised £3bn. Of this 2,700 estates of over £1m paid £1.3bn. The beneficiaries of these super-estates will under Osborne's proposal receive an extra £280,000 or so. 6,722 estates over £0.5m paid just under £1bn, an average of £142,000 each, which they would now not have to pay.
I can't agree with in terms of good governance. All taxes have opportunity costs. The opportunity costs of this seems particularly extragavant. It would (on 2004/2005 figures) lower the tax of people inheriting between £0.5m and £1 by £142,000 on average, and of those above £1m by £280,000 on average. The money foregone here, from less than 10,000 estates, could have been used to cut income tax by 1-2p in the pound for millions of hard working families.
The more thoughtful advocates of such a proposal note that with rising house prices more and estates would be subject to inheritance tax. Yet this means that income tax could have been lower and lower. I'd rather tax bequests (often simply due to house price inflation) than productive work.
Labels: inheritance tax, Taxation
Tories' big plan
Drum roll...yes it's to
scrap inheritance tax. The way they portray it is fabulous:
"In London and the south particularly, but also in areas of the north, because of rising house prices there are hundreds of thousands of couples who are going to suddenly be hit with this inheritance tax when their parents die," he said.
"It's not paid by the wealthy. It's paid by those of course who inherit."
Those poor couples - can you imagine waiting desperately for your parents to die, and then suddenly finding that you don't get £500,000, but instead you get £420,000. How does one cope? I suppose the point is those couples who just creep into the threshold, and so would have got £350,000, but instead get, £330,000. The inequity!
The second statement from the Tories is a complete non sequitur. But the main reason its a bad idea is this: the Tories claim the problem, so to speak, is because of rising house prices. That is, indeed, the reason why the numbers paying inheritance tax will rise from their current miniscule base. Yet if anything can be described as unearned wealth, it is that. Furthermore if any increase in wealth is government-caused, it is that. So the Tories are planning on cutting the already-low taxes on inheritances of couples of unearned government-caused wealth, rather than (all things have an opportunity cost) cutting taxes on productive behaviour. It makes no sense.
I wouldn't disagree that the system could be refomed, in fact I would make it explicitly a tax on the recipients, and thus make it essentially avoidable if it was spread around enough people.
Labels: conservatives, inheritance tax
