A “Little talked about” Tax

Since less than 1% of estates in USA and less than 5% in UK pay any inheritance taxes one would expect that well over 90% of the general population would support having such a tax.
Strangely this does not seem to be the case; I believe that’s due to those with most power in our society (usually those with most money) carefully and cleverly promoting the notion that it is somehow basically an unfair tax involving “double taxation”.
Carnegie, the great Scottish philanthropist had it about right — ‘The parent who leaves his son enormous wealth generally deadens the talents and energies of the son and tempts him to lead a less useful and less worthy life than he otherwise would.’ A damper on the incentive to work hard? The majority of us have worked over the years because we needed the money, full stop.
If we hadn’t needed the money would we have worked as hard? I doubt if I would have, but I might have had more fun though.
Double Taxation is more an emotive than an accurate term when it is used with regard to Inheritance tax..
When your money is passed on, You will have paid tax on it once and since You´ll be dead you will not pay tax a 2nd time.
When the recipient receives it He/She will pay tax on it for the First time.
However in your life time you will be regularly subjected to double taxation and no big issue is normally made of it. You pay VAT/IVA on everything you buy using funds already taxed. When you fill the car there’s fuel tax, buy a property there’s Stamp duty etc, all instances of real double taxation.
A few other thoughts.
1) Where there are significant funds to inherit the chances are that the potential recipients have already been “ lucky winners in a sperm lottery”, they’ll have had a safe and secure home, a good diet, a good education, good healthcare and a fair range of beneficial life experiences.
2) Where there are a number of siblings is it always fair to split the inheritance equally?
If the kids have all worked diligently but some of them may just have done better, been lucky in their employment or “married well”, do they need as much help as one who, through no apparent fault of their own, has fallen on hard times and is clearly struggling to cope or bring up their own family.. a “a winner versus someone genuinely struggling” situation in which I believe parents should have the cajones to confront. An equal division can be a easy cop out.
Dividing up unearned wealth can also fertile ground for inter-sibling rivalry, and generally the more dosh involved the greater the potential rivalry.
3) In the case of large, probably inherited, land estates, a strong inheritance tax would help to bring that land or at least some of it on to the market and possibly achieve a more equitable distribution of a scarce finite resource.
4) Inheritance taxes are a source of Govt income; if denied this income they will have to make it up by raising current tax levels, eg. income and various other double taxing charges such as VAT, fuel tax etc Also the more collected from Inheritance taxes the less will be the tax burden on the current workers and wealth-creating entrepreneurs.
5) Just because the Very rich, such as Ratcliffe, Branson, Dyson etc can pay a Big Four to hugely minimise their inheritance tax payments is not a reason for doing away with it. I would argue the very opposite, we should legislate to make if much more difficult for them to avoid/evade it.
6) Where one really does not want have the beneficiaries pay any tax on this unearned income it is possible to gift funds to them and providing this is done at least 7 years before the donor falls off the perch there will be no inheritance tax. This kind of legal tax avoidance has the added benefit of getting currently available funds into the hands of recipients when they probably most need it (Mortgages, young families etc) and when they will most likely spend it, thus get it into circulation rather than it sitting, often unproductively but definitely earning low interest in a bank account.
I suspect there are other arguments in favour of Inheritance tax, I just can’t think of them at the moment.

About tryingtobefair

More than a little interested in how we can all make the community we live in a better place. "The world has enough for everyone's need, but not enough for everyone's greed" Gandhi. Let's all learn what's enough.
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