We seem to be a nation pre-occupied not so much with the after-life as the after-death.
Perhaps our obsession with planning ahead, whether it be funeral costs or the settlement of our affairs with the tax-man, allows us a way to opt out of such musings as Claudio’s
Aye, but to die ,and go we know not where;
To lie in cold obstruction and to rot;
This sensible warm motion to become
A kneaded clod; and the delighted spirit
To bathe in fiery floods, or to reside
In thrilling region of thick-ribbed ice;
To be imprison’d in the viewless winds,
And blown with restless violence round about
The pendant world ; or to be worse than worst
Of those that lawless and incertain thoughts
Imagine howling: ’tis too horrible!
The weariest and most loathed wordly life
That age, ache, penury and imprisonment
Can lay on nature is a paradise
To what we fear of death.
“What we fear of death”, drove our ancestors to make endowments to institutions that their names might be remembered. Many pre-purchased indulgences that were thought to lighten the load of purgatory . some went so far as self-flagellation as penance to mitigate against the “fiery floods”.
Nowadays , we visit financial advisers to dispose of our assets and banish “lawless and in certain thoughts” about our inheritance. Some may regard this as fiscally progressive, others that is morally and spiritually regressive. I’ll go no further down that rabbit hole.
Talking of rabbits
The Treasury press office let it be known that the Chancellor would be spending his weekend pondering whether to reduce death taxes. Death (or inheritance) tax falls mainly on those with illiquid assets (the family home) and quite often on those with no liquidity to pay it. Where the tax is on liquid savings, then the savings diminish but need no necessitate a change of lifestyle and the loss of property with more utility to the surviving family than can be realised from cash proceeds.
The likelihood of inheritance tax, disrupting the continuity of a family’s history is in stark contrast to the vision of “wealth cascading down the generations” a phrase coined by George Osborne in 2007, has become a mantra for conservative politicians and financial planners alike.
Jeremy Hunt has let it be known that inheritance tax is on the agenda of the Autumn Statement and headlines are made
Paul Lewis is right to remind us that inheritance may be a national obsession but its taxation is much less prevalent than the incidence or poverty
— Paul Lewis (@paullewismoney) November 17, 2023
How can the Chancellor afford to cut taxes.
I won’t drone on about the propensity of Tory politicians for regressive taxation but stick with rabbits.
If – and I think it a very unlikely “if”, there is a cut to headline inheritance tax, I would expect it to be paid for by adjusting what it’s paid on. By that I mean the unspent pension pots of the wealthy, used to by-pass inheritance tax and provide liquidity where IHT is due.
Let’s remind ourselves that those who can afford to maintain their wealth within a “pension wrapper” are subject to no tax on the transference of that money on death before 75 and can make arrangements to maintain this through trusts – if they choose to roll up their pension investments beyond that.
This is a con, it defeats the object of the generous tax-relief offered to savers and their employers in building up the pot and it makes a mockery of the tax-free roll up of investments in later life. The tax-payer is subsidising the wealthy and the wealth management industry to a ridiculous extent.
A change in the headline rates of inheritance tax – to be welcomed by those contemplating the transfer of the family silver – may have limited social good , but only if it is accompanied by a change in the way DC pots are taxed beyond retirement.
We have a state pension age which currently only impacts the taking of pensions and pension related benefits. It would make a lot of sense to make the inheritance of wealth within an approved pension wrapper (of whatever kind) subject to inheritance tax. It would make sense to limit the tax free transfer of pension wealth to pots of those who die before reaching state pension age.
As well as making cuts in inheritance tax self-financing (and therefore yet another tax on the not so wealthy) , this measure would require those with pots to consider spending them, pouring money back into the economy. It would encourage the pension industry to wake up from its current torpor and start building pension decumulation products that provide a wage for life and it will create a pension culture among savers, that is sadly lacking today.