Inheritance tax is less a levy on the assets of the dead than it is a state of mind. Fewer than 4 per cent of estates are liable to pay it, because it only begins to apply to assets over £325,000. In reality, exemption thresholds allow many couples to pass on up to £1m tax-free.
But this being Britain, we are obsessed with housing (and, to a lesser extent, death). Therefore, there is plenty of buzz around Westminster that Jeremy Hunt is considering cutting inheritance tax at the Autumn Statement next week.
How can he afford to do this? Well, that's the beauty of fiscal headroom – it is a mysterious figure created by arbitrary fiscal rules we never seem to meet but must pretend we will get to one day
Some of the higher revenue is thanks to fiscal drag (cc my greatest ever newsletter subject line), the process by which income tax thresholds remain frozen while salaries rise with inflation, drawing more people into higher rates. The problem, as the Resolution Foundation's Torsten Bell points out, is that some of this money is illusory, in that it only materialises if you effectively cut public services by leaving them to deal with the higher inflation.
Oh well, with that out of the way, the chancellor's fiscal headroom appears to be higher than previously thought, while the Conservatives' poll rating continues to fall further than hitherto imaginable. Throw in some angry backbenchers and you've got yourself a tax cut. For the moment, you'll have to ignore the fact that public services are crying out for more cash.
There is of course a political problem. Cutting inheritance tax sounds like a sop to the better off because, in large part, it is. The narrative Labour is only too pleased to push would be underlined in red marker if, at the same time, the chancellor decided to uprate benefits by October's inflation figures, rather than September's.
If this sounds esoteric, you are probably not on working-age benefits. Given the sharp fall in inflation from 6.7 per cent in September to 4.6 per cent the following month, this would have a significant impact on the ability of millions of people to afford essentials such as food and energy.
Given all this, why the focus on an inheritance tax? Well, cutting it is economically attractive in part *because* so few people would benefit. Reducing income tax for example would help many more people but would also 1. cost the Exchequer a lot more. and 2. risk stoking inflation.
None of this is to say that inheritance tax isn't ripe for reform. It may only raise £7 billion today – for context, VAT brings in roughly £160 billion. But that is set to increase. The Institute for Fiscal Studies forecasts that inheritance tax receipts will grow to £15 billion in a decade, driven by rising levels of wealth held by the next generation of retirees.
It's also important to note that inheritance tax isn't the be-all and end-all when it comes to addressing inequality. If you (or more accurately your parents) are liable to pay it, there is a good chance you have already directly benefited from their largesse. As the IFS notes, by the ages of 50-54, children of the wealthiest fifth of parents have an average of £830,000 in wealth, compared with £180,000 for the children of the least wealthy fifth.
Predictions are a mug's game, but it would be a bold government, one year out from a general election, to effectively cut benefits for the roughly nine million people on working-age benefits while slashing inheritance tax for a small minority. Let's see what Wednesday brings.
In the comment pages, Tracey Emin suggests she may feel as if she smells like a public loo at a Fifties train station, but she's loved. Nancy Durrant calls Ian McKellen's thrilling new show just the kind of innovation the Evening Standard Theatre Awards celebrate. While I ask why Indian fans are freaking out over the fact that their cricket team refuses to lose.
And finally, a disgruntled rail worker tricked Subway customers into deluging the control room at Waterloo station with sandwich orders during a “revenge” campaign. He is now facing jail.
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