Wednesday, 18 March 2015

He is starting to get it.

Philip Booth of the IEA has been fairly Home-Owner-Ist in the past, so I am heartened that even he can see the flaw in the idea of exempting main residences from Inheritance Tax.

From today's City AM:

Some Conservatives are currently pushing plans to increase the amount of an estate which will be exempt from Inheritance Tax by the value of a family’s primary residence up to £350,000. This will save many families up to £140,000.

Tax rates should be low and flat. Tax exemptions lead to discrimination and distort economic behaviour.

If this tax change goes through, two families with identical total assets could find themselves paying vastly different amounts of Inheritance Tax if one of the families invested in shares and the other invested in their home. Such discrimination against business investment is wholly unjustified. It adds to the already heavy tax discrimination in favour of owner-occupation.

The proposal will encourage investment in housing rather than in other forms of investment. Given the fixed supply of housing due to planning constraints, the result will be higher house prices. It will also encourage older people to remain in larger properties rather than downsizing, moving into more appropriate sheltered accommodation, or moving back in with their family.

The incentives will not be trivial. A 90-year-old woman, for example, living in a four bedroomed house in Leicester might pay an extra £100,000 in Inheritance Tax by choosing to move into sheltered accommodation, or an extra £140,000 by choosing to be cared for in her son’s or daughter’s house.

So far so good.

He then goes off on a tangent with some wild suggestions about reforming/simplifying IHT which are
a) administratively unworkable, and
b) miss the point. IHT raises barely more than the TV licence fee and they could get that money in much more easily in other ways (like a council tax rebanding, or just sticking 15% on Council Tax).

But hey, it's a start.


Bayard said...

"He is starting to get it."

Well, no he doesn't get it. I'm sure that the raising of land prices as a result of this change is not a bug, but a feature.

Any policy change that impacts on the elderly has to be viewed in light of the fact that pensioners are more likely to vote and are more likely to vote Tory.

Mark Wadsworth said...

B, for clarity, i meant Philip B, an occasional email friend of mine. Not the bloody Tories with their Homey gimmicks.