Don't take tax advice from Iain and Donal
Iain Dale and Donal Blaney are terribly upset that Jade Goody’s estate is liable for £1.8m inheritance tax on its value of £4m. I wouldn’t take their advice for the minor detail that the liability isn’t £1.8m, but £1,350,400. The sums are below the fold.
Donal refers to the PM as ‘Gordon the grave-robber’ for the existence of inheritance tax. One might just as well say ‘Pitt the Plunderer’ (as the estate tax was introduced in 1796 in the first ministry of the Tory, Pitt the Younger), ‘Aberdeen the Appropriator’ (as it was the Tory Earl of Aberdeen who extended it as succession duty in 1853) and ‘Thatcher the Thief’ for the 1986 rebranding of capital transfer tax as inheritance tax. In fairness, significant changes also took place under Rosebery (in 1896; Rosebery was a Liberal) and Wilson (in 1975). You could add ‘Cameron the corpse-cudgeler’ as he doesn’t (I believe) want to scrap inheritance tax, but merely to raise the threshold.
As an aside, I wonder what provision, if any, will be made for charities if IHT is significantly reduced or scrapped outright. I’m guessing that they will lose out as, at the moment, gifts to charities aren’t subject to estate tax.
The idea of estate taxes is not new. It has two functions. The first is to raise money. Ultimately, it does not raise a vast amount – less than one per cent of HMG income – and so could be replaced by increasing taxes or cutting spending without too much difficulty. Its other function is (assuming avoidance doesn’t become too high) is to stop or slow the creation of huge, dynastic wealth. The latifundias of southern Spain and much of Latin America are linked to all manner of clientelism and economic exploitation; this is not necessarily something confined to the rural world. It says, in essence, that very great disparities in wealth lead to very great disparities in power, in turn leading to a range of societal problems, not least of which is disconnection from the main of society.
xD.
Upate – Chris Paul weighs in.
As promised, my workings-out. Corrections gratefully received.
The nil-rate band covers the first £312,000, leaving a taxable amount of £3,688,000. Ms Goody was married so the option exists to use her husband’s allowance against the inheritance; this has been in effect since it was announced by Alistair Darling in the 2007 PBR. That leaves a taxable amount of £3,376,000.
40% of that is £1,350,400. I’m not even sure where the £1.8m figure came from, as 40% of £4m is £1.6m. That’s an overestimation of about a third.
