When death comes, as it inevitably does, inheritance tax can make the grieving process even more painful. Death duties, as they are often known, have been around since 1796 but there have, over recent years, been growing calls to scrap them. Should we?
Recently, John Redwood's Economic Competitiveness policy group recommended the abolition of inheritance tax. George Osborne took a significant step in this direction when he announced at the Conservative Party conference that he would raise the threshold to £1,000,000 were he to become Chancellor. Labour responded by allowing couples to transfer their allowances.
The argument is that, with rising house prices, the tax is becoming ever more unfair, with many middle-income families now being penalised. Only 6 per cent of estates currently pay inheritance tax but, according to Scottish Widows, 37 per cent of households have an estate with a value above the current threshold (The Times, 22 August). Advocates of scraping the tax claim that inheritance itself represents a redistribution from old to young, thereby obviating the need for such a redistributive tax. Daniel Finkelstein argued in The Times that, "the idea that the family’s wealth stays in the family is one way that we signal the obligation that the past has to the present and the present has to the future."
The counter-argument has been advanced by Warren Buffet, generally a strong advocate of low taxation. He strongly favours inheritance tax, believing that repealing it would be like "choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics." Without such a tax, he fears an aristocracy of wealth, passing down the ability to command the resources of the nation based on heredity over merit. For Buffet, basic economics requires resources to be put to their best use, rather than given to those whose parents did well, for the benefit of the whole economy.
In trying to decide between the competing arguments in relation to inheritance tax, we can draw an interesting parallel from the Jubilee campaign. In 2000, responding to the global debt crisis that crippled poor countries’ abilities to direct funds towards health and education, and inspired by the concepts of the Sabbath Year and Jubilee Year, the Jubilee Campaign demanded debt relief for impoverished countries around the world. Many supported this effort and the subsequent "make poverty history" initiative because they made sense... and possibly because they didn't hit our own pockets too hard. But how do Jubilee and Sabbath speak to our lives here in the UK?
The Old Testament speaks of a Sabbath day, a Sabbath year and a Jubilee year. Every seventh year the land was renewed and debts were cancelled. This seven-year cycle was a structural mechanism designed to address an ethical challenge still prevalent today - the cycle of intergenerational poverty. By cancelling debts every seven years, and returning lands to ancestral owners every fifty years (the Jubilee Year), the Old Testament instituted an economy where wealth was redistributed regularly, by returning it to families. It did not stop wealth creation, but prevented land accumulation. Bad decisions and laziness still had consequences, but new generations were given a fresh start.
Consistent application of the Jubilee principles would require a strong inheritance tax system.
In the Old Testament land was like a Patek Philippe. The exclusive watchmaker claims, "You never actually own a Patek Philippe. You merely look after it for the next generation." Similarly, in the Old Testament a man (it was a patriarchal society) never really owned land but inherited from his forefathers (and ultimately from God) and held it as a future inheritance for his own family. Though a father could sell, or more accurately lease his land, the Jubilee laws prevented him from permanently depriving his children of their inheritance. A father who had done well and acquired more land could not pass this on to his children as this was returned to the original family owners at Jubilee.
These principles could be followed by giving inheritance tax-free allowances to each family member, beyond which, any inheritance would be taxed on a sliding scale tax. This would allow significant assets to remain within the family with little or no tax implications. However, transfers outside the family (other than to charities) and large transfers to family members would be taxed heavily. Laws relating to forced heirship could be considered, such as are practiced in France. On death, a certain percentage of any estate would automatically pass to particular family members regardless of the will. The French system protects a broader number of family members to a greater degree than our current intestacy laws.
The current system relating to gifts before death should be maintained, with annual limits to prevent abuse. (Gifts given more than seven years before death are tax-free.) This encourages good estate planning and rewards families where there is trust between the parents and the children. It also forces families to discuss and plan for the very real issue of death - a taboo topic of conversation today. The current system relating to charitable gifts should also be continued, allowing any amount to be given to charity tax free, subject to the deceased’s obligations to family. These gifts to charity are a move towards the Sabbath and gleaning laws - gifts for the benefit of the wider community.
The aim is to allow the transfer of a reasonable amount of family property to the next generation without entrenching accumulation and inequality. The Jubilee levelled the playing field every fifty years. Death affords an opportunity in the modern world to enact, in a small way, the Jubilee principles.
Peter Lynas is a former barrister who recently completed his MDiv at Regent College, Vancouver.
