First the good news from Dan Niedle
Now the bad news – the Conservative party has determined to scrap IHT for the few.
I hope that we never see the scrapping of inheritance tax – it would do little good and a lot of harm as Dan Niedle explains
This is not me speaking with a political hat on. I am not against Conservatism if it means conserving what is good. Of all the taxes that are paid, IHT is one of the more affordable, people who pay it are looking at money coming to them from other people’s estates and the tax that they pay meets important bills. As Dan puts it, it meets the bills of youngsters looking to get on the housing ladder.
There are many other things that need to be paid before we come to the cost of passing the family house down through generations.
These include support for people who might lose the family houses in a much more difficult way. Having to sell the house to pay the long term care bills, especially when the house cannot be lived in by the owners who are paying residential costs to live elsewhere with carers.
These also include the acute illiquidity of elderly people who have only the state pension coming in and the costs of maintaining a family house to pass on to the next generation. It becomes an heirloom that no one can afford. Much better that family homes that don’t meet the needs of families are sold when they become unaffordable to their elderly owners.
This may sound brutal but it needs to be discussed. If we put such a nostalgic value on family homes we create a blockage in the housing market. As Dan Niedle points out, it actually makes the family home something to trade up. I am not sure that many old people will want to move house for tax reasons but I can see money being poured into improving houses that need repair so that they can become part of the family estate. This is no more than wealth management, not something that we should be aspiring to as a use of our tax system.
Death is a bloody thing, it leads to a lot of problems but IHT is only touching a tiny minority of families. IHT is a problem that people should not aspire to have on their list of worries. Right now, property prices (especially leasehold but freehold too) are falling.
The property prices at the middle top of the price range will increase fast if people get an expectation of IHT being abolished (just as right now house prices are falling as middle class people are ever more paranoid about their having to pay it). Houses are over-priced and perversely the fall in house prices is good news for those with impending IHT bills based on the value of the house prices.
A fall in house prices in the UK has long been overdue, we have relied on us being property millionaires when we should be looking for more sensible distribution between money we can access and bricks and mortar that we can’t.
We are so emotional about the “family home” that we forget we need a wage in retirement to pay the household and then care bills. IHT relief’s an extension of this obsession.