It amounts to a £1bn subsidy to the property market in London and the South Eastby Rachel Reeves / March 15, 2017 / Leave a comment
A fair tax system should tackle unjust distortions in the way that wealth is distributed, in an economy that works for everyone. But in last week’s budget, Chancellor Philip Hammond announced that he will plough on with his predecessor’s planned £1bn cut to inheritance tax. This will only serve to entrench further a blatantly unfair policy.
Death duties on estates or individuals have been around in some form since at least the 17th century, in various guises including probate duty, legacy duty, succession duty, estate duty and capital transfer tax. The latest incarnation, inheritance tax (IHT), was introduced in 1986. Its changing forms reflect the sensitivities around this transfer tax, which has proved too easy to avoid for those with good accountants and lawyers.
At present, IHT is charged at 40 per cent on the portion of an individual’s estate that is above the threshold of £325,000. That allows a couple to pass on a £650,000 estate free of tax. Under its plan, the government will gradually raise the individual threshold to £500,000, allowing a couple to pass on a £1m property or estate free of IHT by 2020.
Those fortunate enough to have been born into well-off families are set to enjoy a significant windfall in unearned income. But a time when the NHS faces a funding crisis and more money is desperately needed for social care, is this the right priority for a government that claimed it would focus on those who “just about managing”?
I commissioned independent statisticians in the House of Commons library to examine which areas would benefit from the tax break. Given that the main asset in most large estates is the family home, they looked at property sales across Britain over the last two years using Land Registry data.
Unsurprisingly, 96 of the top 100 constituencies for homes that cost £650,000 or more were in London and the South East. The remaining four were in Conservative-held seats including Tatton, the constituency of former Chancellor George Osborne, who originally proposed the cut in inheritance tax. In Prime Minister Theresa May’s Maidenhead constituency, 20.1 per cent of homes were sold for at least £650,000; in Hammond’s Surrey seat of Runnymede and Weybridge, 18.3 per cent were.
Yet, in my Leeds West constituency, just six homes were sold above that…