I have yet to read an article by Stuart Kirk that I haven’t enjoyed. His dismissal of the froth surrounding ESG landed him in hot water with his boss- HSBC – or a convenient exit route ( depending on how you read his behavior). But, as subsequent events have proved, he was articulating a deep-felt scepticism about “virtue-signalling”. He’s left HSBC for better things!
Now he writes occasional columns for the FT which are thought provoking. His piece this week on inheritance tax is timely (apparently the Government is thinking about abolishing it). Stuart’s piece focusses on the psychology of taxing an estate ( a tax on the corpse) or the inheritance (a tax on the heirs).
Kirk puts emotion at the heart of his argument. He argues that the economic arguments for a tax on the inheritance are weak.
However irrelevant inheritance taxes are in the economic scheme of things, they excite us due to their close association with two themes that dominate our lives: mortality and family.
If – like the tax on breaching the Lifetime Allowance – inheritance tax brings in too little to be worth the candle, then the win from abolishing it is amplified by the psychological release – its abolition would bring.
Just as the LTA (an allowance few of us will breach), inheritance tax is aspirational. Most of us won’t pay it because we don’t have the assets to pass on. Creating an inheritance tax problem is largely an aspirational risk
Tax softly , for you tread on my dreams
Kirk concludes that the inheritance is imbued with emotion that leads us to irrational concerns about tax.
Maybe a photo, a favourite chair, the family home or a million-dollar trust fund. Assets handed down have psychic and emotional worth far beyond their monetary value. When politicians tax these symbols, we feel genuine grief.
I have often wondered at the amount of time and effort put into estate planning by financial advisers. It is something their clients value beyond those things that matter to us while we live.
Our legacy lives on , through the diligence we spend on IT mitigation – or so we like to believe.But I have yet to read a gravestone that recognises our efforts to save our children tax.
I know very few families who blame their deceased parents for not providing the means to pay the tax bills.
I suspect that we are more self-serving than we like to admit, when meticulously planning estate management. Our dreams are for our posthumous memory to be a fond one – our fear is that we have no means to measure success. That is why IFAs go to such lengths to involve all the family in the process – we all have to be in on the plan for posterity.
Should inheritance tax be abolished?
I am for the abolition of inheritance tax, if only to prevent more time , effort and money being spent by the rich in getting around it.
I am happy to see a wealth tax, if it can be imposed, but note that no politicians are brave enough to state they would do such a thing.
In the absence of inheritance and wealth taxes , I see a reform of the highly regressive pension taxation system as a priority for the next Government.
Right now , we are subsidising the wealth management industry through the pension taxation system and allowing pensions to become an inheritance tax avoidance mechanism in the process.
Take away the need to provide liquidity for the inheritance event and you might get the rich actually spending their pensions. Right now , too many of them are hoarding them to encourage more heartfelt epitaphs from their families.