Scrapping inheritance tax is a terrible idea

There is no hole deep enough that a Conservative minister cannot muster the spadework to excavate it to even greater depths. No sooner had Kwasi Kwarteng announced that he was dropping his proposed reduction in the upper rate of income tax, than Andrew Griffith, one of his ministers at the Treasury, declared that he would like to see inheritance tax abolished. ‘I have lots of my fantastic local association [members] with me here and they will know because they asked me at my selection meeting 27 months ago which tax, if I had the choice, I would most like to see eliminated. History will record it was inheritance tax, ’he told Conservative party conference. 

Dropping the 45 pence tax rate to 40 pence was at least the right policy, albeit at the wrong time – it was politically explosive at a moment when you are demanding that workers make do with below-inflation pay rises. Abolishing inheritance tax would be damaging for the Tories at any time. I don’t doubt that inheritance tax is unpopular – among those who are in line to receive large legacies. But among young voters without wealthy parents, who have already seen their chances of owning their own home destroyed by the ever-greater concentration of property wealth in the hands of a lucky few? Reducing income tax – whether it be the top rate or basic rate – is about rewarding work. All that would be achieved by abolishing inheritance tax, by contrast, would be to reward good fortune. And no, I don’t accept Milton Friedman’s argument that inheritance tax would destroy the incentive to work because no one would want to invest on a horizon beyond their own lifetime. That might be an argument against inheritance tax set at punitive levels, but not one set at similar levels to income tax.

Griffith – and any other Tory tempted to press for the abolition of inheritance tax – needs to study the age profile of his voters. Why is it that only 30 per cent of 30-to-39-year-olds voted Conservative in the 2019 general election? This is a group well beyond rebellious youth; they are people who are settling down, building careers, and raising families – or rather they would be if they could afford a decent home. A large part of the reason why so many of this age group are unable to do so is that their parents’ generation is clinging onto property, much of it acquired through inheritance. Younger people have been condemned to become their buy-to-let tenants. No wonder they are no longer attracted to the party of capitalism and the free market.

Far from abolishing inheritance tax, the Conservatives should be increasing it. Or rather they should abolish inheritance tax as a tax on estates – and tax the recipients instead. Inherited capital and income should be treated exactly as any other kind of capital and income, taxed at 0 per cent, basic rate or upper rate depending on how much money was being inherited. That would be fair – and enhance incentives to work. No longer would the children of wealthy parents be able to acquire, as they can now, a million-pound family home without paying a penny in tax. (In the case of a family home the threshold rises to £500,000, which can be added to your partner's £500,000 allowance to enable a million pound home to be passed on for nothing.) If the children of wealthy parents want a fancy home, they would have to build their own careers instead.