Apparently The Death Tax Should Be 85%

It's a strange suggestion

Strange though it is it is also one that seems to be being made. That the combination of taxes at death should be 85% or so. This is, perhaps, not the way to create an independent bourgeoisie where wealth and independence cascade down the generations.

Which is, possibly, the point.

But this is being seriously suggested:

Rachel Reeves has been urged to start charging capital gains tax on second homes and businesses after their owners die.

Scrapping relief that wipes out capital gains tax charges on death would simultaneously drive economic growth and raise £2bn a year for the Treasury as the Chancellor scrambles to fill a £22bn budget black hole, according to the Institute for Fiscal Studies (IFS).

More tax revenue is not known as a boost to the growth prospects of the economy. Reducing the size of the budget deficit is definitely contra-growth - well, to anyone even vaguely Keynesian it is and in the short term at least we’re all Keynesians now.

There’s more to this though:

Arun Advani, associate professor at the University of Warwick, said: “It would be good for growth. It would stop this problem of people hanging on to assets that they don’t actually really want. And it would be good from a revenue perspective.

I am not a fan of Advani. In fact, giving evidence to Parliament one time I flat out insisted that an earlier suggestion of Advani’s was simple theft. Advani also whines to people if he’s criticised so that’s good. It’s also a flatulent argument:

If a person holds on to their business until they die, not only will their capital gains be wiped for tax purposes, but their inheritor will also benefit from business relief on inheritance tax, which is worth up to 100pc on business assets, such as shares in an unlisted company.

Mr Advani said: “The empirical evidence is that kids tend to run businesses worse than their parents did. So it is actually better off being passed on from a growth perspective.”

Because not charging the tax on some people might not be perfectly optimal we should charge all the tax on everyone. Toss.

But to what the argument actually is:

Capital gains tax is charged on the profits on the sale of assets such as shares or second homes, at a rate of around 20pc for a higher rate taxpayer, depending on the asset.

However, under the existing system, if a person does not sell during their lifetime and instead holds the asset until they die, they can avoid paying the tax altogether because of a relief known as “uplift on death”.

This means that no capital gains tax is charged on their period of ownership, although some assets are still liable for inheritance tax.

The person who inherits the asset does so at its current market value. This means that when they sell, they will only pay capital gains tax on the increase in value since they took ownership.

So, they pay 40% inheritance tax. The rebasing is because the estate has been examined, what should be taxed has been taxed, what should not be has not been and there we are, a clean slate from which all start again. And the argument is that this isn’t enough, they should also be charged the 20% capital gains tax too.

But there’s more!

…but this number would be even bigger if Ms Reeves increases the headline rates.

Ah, yes, the idea that CGT rates should be the same as income tax rates. 45%. And with no indexation allowance either.

So, 40% IHT, 45% CGT and a large chunk of both will be merely inflation, not actual gains at all. 80%, 85%, would actually be an undervaluation of the tax rate given that no indexation.

Thieves, obviously. As with the evidence to Parliament. Mere thieves.

….according to the Institute for Fiscal Studies (IFS).

The think tank’s head of tax, Helen Miller, said: “It is a bad tax relief and I would love it if the Government scrapped it.”

I did actually write to Ms Miller - a week back, that’s enough time for a response but came there none - asking for a more detailed paper they might have on this. Are they really proposing that the true death tax rate should be that 80 to 85%? I have to assume they are for that’s what this reporting does say.

We are in Conquest’s Second Law territory here:

Any organization not explicitly right-wing sooner or later becomes left-wing.

Supposedly independent analysts of UK government numbers both utilising Advani and calling for 85% death taxes? The wolf’s got through that door, no?

Have you too discovered that as age increases useful lampposts are more difficult to find?