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“Watch Out! They’re Trying to Buy Your Vote!”

Inheritance Tax Troubles

Julia Gasper. Sunday, 11 November 2007

Gordon Brown was obviously scared when the Conservative party promised that if it wins an election, it will raise the threshold of inheritance tax (IHT) to one million pounds. Immediately, the PM retaliated by offering to raise the threshold himself, at least for married couples. Odd for a Labour government to reduce inheritance tax – once the mainstay of their agenda, which is supposedly the abolition of social class? Old Labour emitted an audible howl when the Thatcher government, tardily and grudgingly, reduced the rates of IHT in the 1990s. Mr Brown justifies his new stance by saying it makes the system fairer for married couples. Why favour the children of divorced or unmarried couples? Everybody seemed to agree that it was a smart move to gain popularity.

But who will actually be better off if the threshold of IHT is raised so dramatically? A lot of people seem to assume that it will automatically benefit anybody whose parents’ house, or savings, is worth more than £300,000. Middle Englanders will all win the lottery!!! But will they? For a start, there has never been any legal obligation for parents to leave their children anything at all in their wills. Under British law they are completely free to leave as much, or as little as they want. In forty per cent of cases, so I am told by a probate lawyer, this is nothing. Nil. Zero. The same applies of course to grandparents, uncles and aunts. Britain, like America, has a completely free system for the testator to do as they like. And forty per cent of parents don’t like their children that much, or believe that they have done enough for them already. They prefer to spend their money before they die or leave it to a charity. Charities will undoubtedly lose out if the threshold of IHT is dramatically raised. Many people now leave money to charity to reduce the amount of tax they have to pay, and their children get the rest. That will be unnecessary if the threshold is £600,000 or a million pounds – far higher than the average price of a house even in today’s inflated market.

Inheritance does not only favour the children of the rich above those of the poor. It favours small families over big ones. If you are one of several children, you stand to gain far less from inheritance than an only child. Richest of all will be the only child of an only child, since family assets will not be divided. People, who happen to have rich childless aunts, or gay uncles, may pick up even more along the way. Meanwhile, those who have brothers and sisters can only hope to inherit a small fraction of this amount. And there are loads of other forms of injustice built in to inheritance.

Within a single family, parents can leave all their money to one child or one grandchild, and nothing to the rest. They are quite entitled to have favourites. Just having rich parents isn’t going to make you automatically rich. How will you feel if your brother or sister inherits a million pounds, even half a million, and you get nothing? Almost every will I have ever known has caused resentment, disappointment and bitterness. One father of nine children left all his property to the two youngest sons, just because when he died they were young and had never left the family home. He reasoned that all the other sons and daughters had got a house, so they didn’t need to inherit one. Of course all the others were working very hard to pay their mortgages, and they rightly felt that this was unfair. It caused estrangement and bitterness in the family, and so do countless other wills, made every year by doddery geriatrics. Families are divided and reduced to feuding by this sort of thing all the time.

The same thing happened in the family of a friend of mine in Ireland. There were four daughters. Two left home and worked as nurses for twenty years, coping with a huge amount of stress and insecurity. The other two stayed at home, never had a job and never paid any bills. When he died, the father left the house, which was by then far more valuable than he could comprehend, to the stay-at-home daughters, on the grounds that it was their “home” and they should not be deprived of it. The daughters never spoke to each other again. To preserve such a system, are we prepared to sacrifice the benefits of the welfare state?

Old people can be extremely unreasonable and have violent prejudices for the pettiest reasons. Inheritance often depends on being able to humour or manipulate them, which busy working people just haven’t got the time to do. How often can you go and walk your Granny’s dog when you moved to Australia to find a job ten years ago? I knew an old woman who flew into a violent rage with her son because he offered to drive her home on a dark night when she was very drunk. He was twenty-five and had had nothing alcoholic to drink at all. But she got into a filthy temper, regarded his offer as a crime, and for years afterwards would not forget this grudge she harboured against him. She changed her will in favour of somebody else because of it. In another case, an old woman disinherited her younger son because a friend of his, who was invited to stay for the weekend, accidentally ran over her cat when backing his car into the drive. She was inconsolable, never forgot it and left all her money to the other brother.

Parents can be influenced by every form of prejudice – they can leave all their money to their sons and nothing, or much less, to their daughters. They can punish a child for not wishing to remain in the parental religion or political party. Is that fair? It is all legal under British law. They can punish a child for getting divorced, or for being homosexual, or for not having the grandchildren they had hoped for, or (and this is very common) for marrying somebody they don’t like. If your parents are racially prejudiced, they can indulge their prejudice fully when making their will. By raising the threshhold of inheritance tax, we are indulging that sort of freedom, and what will the price be in terms of welfare?

From time to time one encounters creepy types who suck up to rich old people, relatives or not, and spend years currying favour with them, to get money in their wills. They fawn on their victims, smiling and flattering while wishing them underground as fast as possible. If you are one of those professional sycophants, then you should be in favour of abolishing inheritance tax altogether.

The law in most European countries is different, and children or other relatives have a legal claim to family property. But that has never been the case in Britain. And there seems to be no country in the world where the level of IHT depends on how much you inherit, rather than how much the estate is worth as a whole. In other words, there is no incentive to leave your money to more than one person. If you leave it all to your eldest child or grandchild, the inheritance tax is the same as if you divide it between ten beneficiaries. Why shouldn’t IHT, like income tax, depend on how much money people get, rather than how much money was in an estate? Why not have a threshhold for what each person can inherit, so that parents are more likely to divide their dosh between all their children instead of keeping it in a few hands?

I suspect that it is impossible to reduce IHT without taking the money from somewhere. We should think carefully about what services and amenities we want to lose before assuming that we, personally, would be better off. As it is, we say goodbye to hospitals, schools and Post Offices every year in a ceaseless round of cuts. Will a few rich people with Lotus Elans and yachts make it a nicer world?

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