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How Not to Build a Country: Inheritance Tax

Uncle George (not his real name) died some months ago. He was in his late eighties, much afflicted by Parkinson's, and had been in a nursing home for about a year. He had served in the Army in the War, and for a while afterwards. Otherwise he had spent his life running a business. It was a business that his father had started from scratch, at a very difficult time in the Depression of the 1930s, when the firm he had previously directed had been obliged to close by the sudden loss of its export market.

Businesses are vulnerable. They can easily suffer loss and be forced to close, even well-known big firms like Woolworths, Wedgwood, Parker Knoll, and so on. The firm, a small one, relied heavily on the post for distribution, and was very nearly strangled out of business by the unions in the postal strike.  Uncle, though not a natural businessman, steered the company through those stressful and difficult times. Holding on to the enterprise and building it in succeeding decades can be regarded as his achievement, though it affected his health. He used to stay at the office late in the evenings, where he could work without interruptions, and remained at the helm until he was 80. He did not have a family; the firm was his whole life, and only reluctantly, as Parkinson's took over, did he part with the company.

After retiring, Uncle kept a close eye on matters economic. He berated the house-price rush, and foresaw the financial crash some two years beforehand: "I am very worried about this", he used to say, "I think there is going to be a recession. What are the people in the Treasury doing?".

Uncle lived simply, in a small flat. Parkinson's prevented him from driving, so he gave up his car. At root rather insecure, he retained the proceeds of the firm's sale towards health care, operations and long-term care, which he paid for himself, and which, of course, are large costs, quite unquantifiable in advance. He had his own savings, and had looked after the funds his parents had left him, but he was no landed duke with rolling acres. He had what he had been able to save prudently AFTER paying business tax, income tax, capital gains tax, and after meeting expenses of living. But no, there is the further raid made by inheritance tax, at nearly half the value of all assets beyond the threshold. He made some arrangements to mitigate the tax on his estate. In the event, when he died, those arrangements did not have effect.

The inheritance tax came to more than the sale proceeds of the firm – his life's work. The question arises: what had he been working for? Where is the justification for penalising someone who has, at some stress, maintained employment for others and who has made provision for his retirement so as not to draw on taxpayer funds? He was an endangered species – an employer. Many families depended on him. His firm generated wealth; it produced things that were not there before, and which customers bought. It may sound easy to do, but it is difficult and stressful, exacting a health toll on those who perform it. Most unfair is it to inflict concerns about parting with funds on such people when they are elderly, infirm, and uncertain of the future.

Most people have little idea about how inheritance tax applies. Quite a number do not understand percentages. I rather wish the subject would appear in a popular television soap. Here is how it goes.  Dear old widower Bill, quaffing ale in the pub, finds he has won £2.5million on the lottery: drinks all round. He gives a million each to his two daughters. Lots of drinks all round, and gifts to charity, for months to come. The daughters put their funds to good use for their families and houses. Nearly two years later Bill is taken ill and dies: sadness all round, funeral scene, tributes and so on. Bill has not spent all his share: including the recently inflated value of his little flat he was worth £350,000. Before anything can be released the Revenue demands £800,000 up front. The reason is that Bill's estate includes any gifts made within the last two years, namely the £2m given to his two daughters. His estate thus totals £2,350,000. Each estate is allowed £350,000, but the tax, at 40%, applies to the rest, in this case the £2m given to his daughters; that is £800,000, which means everything Bill still had and £450,000 from his daughters: grief all round. That is how it works.

Inheritance tax is a blight. It penalises those who strive, while the state rewards those who do not. The state offers a so-called caring, kindly hand to those who have not made provision, who have spent everything they earned. It says, "We will look after you", thereby removing the incentive to provide; it robs Peter to give to Paul. It is not kindly; it is paralysing. This is how NOT to build a country. In Canada, there is no inheritance tax.

I am not going to invest what Uncle left me in a firm, employing people. Why should I? Would you?  What is the point?

 

Liberty GB's response to this excellent article will follow soon.

 

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