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Page last updated at 11:33 GMT, Wednesday, 10 October 2007 12:33 UK

Death and taxes

Roman coins

By Lisa Mitchell
BBC News

The hottest political potato of the day is inheritance tax, with the Tories and Labour keen to cut death duties. But for 2,000 years, it's been used to redistribute wealth.

Invented by Emperor Augustus to raise funds for soldiers' pensions, inheritance tax has been used by the West to redistribute wealth ever since. It is one of the most ancient and widely adopted state levies on the individual.

It's effectively taxing a very noble desire to look after your children
Matthew Sinclair, Taxpayers' Alliance
The rule of Augustus - or Gaius Julius Caesar Octavianus - as the first leader of the Roman Empire ushered in an era of relative peace and he needed cash to pension off the soldiers back from subduing the natives.

Like its modern day successors, Augustus's tax was revenue raising and hit only those with an estate worth over 100,000 sestertii. Unlike today's system in the UK, it did not apply to those who were next of kin. With varying tweaks, it's a system which has been accepted by societies over the millennia.

But in the past week, controversy over this well-worn formula may have caused a swing to the opposition in 83 marginal seats, prompting the prime minister to cancel his plans for a snap election.

This tax, which affects only 6% of dead people's estates and raises a relatively small amount of total taxation (3bn), has become a political battleground.

Emperor Augustus
Caesar did not have snap elections to worry about

The Conservatives announced they would all but abolish it by raising the threshold from 300,000 to 1m. The government has counter-attacked by doubling the threshold for couples.

"It's 0.5% of government revenue so compared with increases in spending, it's not going to make a significant difference in government spending," says Matthew Sinclair, of anti-tax campaign group Taxpayers' Alliance.

So what makes this "insignificant" tax so unpopular with voters now?

In the US, where a fierce debate has resulted in the tax being repealed for a year in 2010, it's dubbed the "death tax", a phrase which has crept across the Atlantic.

Levying a tax on the dead is a moral issue, Mr Sinclair says, and he claims the duty forces many people to sell their family home too quickly.

The Daily Express
A number of newspapers have campaigned on the issue

"There's something immoral and unpleasant about worsening the trauma of the family of the dying by forcing them to sell the family home according to the taxman's timetable," says Mr Sinclair.

Not only is it unpleasant, it's unfair, he argues, as the dead person has already paid income tax during their lifetime.

This is denied by supporters of a levy on inheritance who say double taxation is accepted throughout the system. For example, people pay income tax and then VAT when they spend their taxed wealth. They argue that creating more equal starts in life for people encourages upward mobility.

The Taxpayers' Alliance disagrees. "It might result in downward mobility and it discourages saving," says Mr Sinclair. "It's a desire to get at people who've been lucky enough to inherit. It's effectively taxing a very noble desire to look after your children."

Tax the rich

But preventing people from taking too great a care of their children is precisely what has kept it in currency for so long.

Storming of the Bastille
France has had strict inheritance tax since the revolution

Death duties have been used since feudal times to redistribute land and property to avoid it being concentrated in too few hands.

In France, the tax on estates is not only high - up to 60% - but inheritance laws introduced after the 1789 revolution ensure people have no choice but to break up their estates among children and relatives. Being able to hand down all your wealth intact to one person created too much inequality for the fraternite.

The idea of a redistribution of wealth is one which still holds for some today.

"It's trying to neutralise the worst excesses of inequality of inherited wealth," says Tim Horton, of the Fabian Society think tank.

"Most modern societies favour equality of opportunity. Inheritance tax doesn't stop parents helping their children, it smoothes off the inequalities at the top."

How much "smoothing off" of the very rich the tax does is questionable. Labour peer Lord Lipsey called it a tax for the "unwise or unlucky" because those in a position to do so could use loopholes to circumvent it.

A dramatic rise in house prices over the past few years has brought many more people unwittingly over the threshold. They have neither the tax savvy nor finances to avoid paying.

Give something back

A fear of being caught in the trap is being exploited by abolitionists, says Mr Horton.

Wealth is power - and it just is not a good situation
Bill Gates Sr
"There is a lot of misunderstanding. People think it's 40% of their estate and not 40% on the inheritance over and above 300,000. There is a great deal of evidence that people do think of the greater good of society when paying taxes, if they think they are fair."

The Fabian Society argues that by taxing recipients of the "unearned windfall", people's faith in the tax will be restored. It proposes that the revenue be more transparently redistributed to poorer children in a form of a state inheritance.

During the debate in the US, some of the staunchest supporters of the tax were billionaires including Bill Gates Sr, father of the Microsoft entrepreneur.

In an interview with PBS, Mr Gates Sr said it was a "question of fairness". He also harked back to the motives of the revolutionaries in 18th Century France.

"Wealth is power. And it just is not a good situation. The examples of the aristocracies of Europe are so clear. We don't want to have a country like that."

Here is a selection of your comments.

I have heard people on the radio try to justify Inheritance Tax on the grounds that it has been with us since Roman times. That is no justification for keeping it. Caligula had some very nifty schemes for raising cash that no-one would seriously suggest nowadays. Examples include execution and confiscation of all the property of his enemies (you could escape total confiscation by commiting suicide and leaving him a mere third - arguably a better deal for the very rich than we have now), forcing Roman matrons to attend orgies and charging their husbands to sleep with them (if they didn't, someone else would be expected to) and so on. I suppose we should be grateful that our own politicians have so little imagination!
Tony Rundle, Northampton, Northants

Forgive me for being thick, perhaps someone can explain, but as far as I aware spouses are currently exempt, or limited in inheritace tax anyway. "Transfers of property and gifts between husband and wife, no matter how large in value, are exempt from Inheritance Tax. This is known as the inter-spouse exemption rule. Each partner's estate is assessed individually at the time of their demise for Inheritance Tax purposes and each partner qualifies for the Nil Rate Band providing together an aggregate exemption of 600,000." Or is this the 'proposal' that they are talking about, already in force? The Labour party say they are doubling the threshold for couples, but if they are currenlty exempt, surely twice nothing is nothing, not 600k????
Heather Bertelsen, Norwich, UK

Inheritance tax is ibscene. It is tantamount to stealing someone's savings through the back door! Put more responsibilities on individuals to look after themselves and rid us of the "nanny" state. People should have to work to drag themselves up in society - not have it handed to them on a plate.
Susan Hadley, Southend-on-Sea, England

Under Communism, inheritance is abolished. Under unbridled capitalism, the rich get richer as wealth is passed from generation to generation. Inheritance tax as a concept is a sensible compromise between the two; what is right is that the threshold and the rate should be reviewed from time to time.
Hugh Annand, Brussels, Belgium

"It is more honourable to be raised to a throne than to be born to one. Fortune bestows the one, merit obtains the other."

Sebastian, London

Inheritance tax is an obscene and unfair tax. It destroys motivation to work hard for the benefit of one's children who, thanks to the situation they face in housing and slowly rising incomes need all the help they can get. It is also a tax on the south east of England with many people of modest means being sucked into it. The hype over the recent announcements is ridiculous. The chancellor has only given what most of us already have thanks to spending a couple of hundred pounds with a solicitor.
Nick Whitehorn, Ewhurst England

This is a false argument. Slavery has been a tradition for millenia in many societies but that doesn't make it right. Inheritance tax is wrongly punitive against people who are careful with their money and assets and are not wasteful. This tax should be ended. It is always a government who benefits from redistribution of money - not the so-called poor. If people are serious about equality, every adult should pay the same annual flat tax with exemptions for those at or below the poverty line.
Mann, Kent

What I find interesting is not so much the argument about the principle of estate taxation, but rather that it is such a hot potato when so few are affected by it. What this brou-ha-ha reveals more than anything is just how influential the press is.
Robin Prior, Maidenhead

Taxes like this always end-up being avoided by those who can most afford it (as they can usually afford the clever accountants and lawyers to advise them) and those who can barely afford it end-up having to sacrifice what they have worked hard to obtain. The Government should focus on closing loop-holes that protect those with the most to spare.
DS, Bromley, England

Inheritance tax is the worst form of a tax based on envy. It is an attempt by the supporters of the idle and feckless (mainly socialists)to take accumulated capital to squander on inflated welfare to the undeserving from those in the main have been who have been industrious and prudent throughout their lives to accrue reasonable but not enormous wealth and wish to their families benefit from their efforts. It should not be given to those who perpetually hold out the begging bowl. The Tories are correct the exemption limit should be 1,000,000.
W G Paynter TD FRICS Dip Rating, Silsoe Beds

As with troop numbers and numerous Brown Budgets before, Darling and Brown announced another empty initiative yesterday. This was already available to any married people by a minor re-adjustment of the title deeds to your house and by writing a will. No wonder they looked so smug.
Craig K, Lyndhurst, Hants

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