by prospect / December 20, 1995 / Leave a comment
Published in December 1995 issue of Prospect Magazine
John Major has put inheritance tax on the map. It is a tax which raises more emotion than revenue, hovering between the incompatible virtues of meritocracy and family obligation. Yet almost nothing is known about it. One reason is that so few people actually pay it.
No tax at all is paid on the first ?154,000 of an estate. Disposals to a spouse are free of the tax; so are bequests to charities and gifts made more than seven years before death. In 1991-92, 255,000 estates were notified to the authorities but only 16,500 qualified to pay the tax, and more than half of the estates were worth less than ?50,000. In that fiscal year just over ?1.04 billion was raised from the tax-this, divided between 16,500 people, averages ?63,000 per head. That means the average inheritance-tax-paying estate was still worth ?235,000 after tax. That sum could be invested in gilts at 8 per cent and generate an annual income of ?18,800-more than the average male yearly wage.
So inheritance tax is not noticeably squeezing the middle classes. Indeed, Inland Revenue figures show that more than half of all receipts from the tax come from estates worth more than ?500,000-hardly the sort of sum a hard-working professional person is likely to accumulate during a life-time. For the well-to-do, as distinct from the rich, a far more pressing problem is how to pay for nursing care for elderly relatives.