Abolish inheritance tax – and make death a taxable event

I have written several pieces on inheritance tax (IHT) recently. You can read them here and here. The key point I am trying to make in bringing the subject up (over and over again) is that there is no need for a separate IHT.

Why? Because from the point of view of an heir, an inheritance is simply a lump of unearned income. So, why not just tax it as such – at the recipient’s marginal income tax rate. That way we would get rid of all sorts of loopholes (and the lifestyle misery they cause), make our system more equal, and best of all, take a huge step towards the simplification of our tax system.

Not everyone likes the idea, of course – a good many readers just think that no one should ever have to pay any tax of any kind on an inheritance. I can’t agree with that (read the articles again for my reasons).

But there has been one suggestion that has popped up a few times that I could accept as a possible alternative to my own ideas. Instead of abolishing IHT and making an inheritance subject to income tax, why not make death a taxable event for capital gains tax (CGT) purposes?

IHT and all its complications are still abolished, but capital gains tax is payable on all assets on death. This is roughly how it works in Canada, although there as I understand it, the principle residence still passes on tax-free.

Regular readers will know that I’d like to abolish stamp duty and put a CGT on primary homes as a way to make property taxation a tad more rational (see many earlier blogs on this).

If the endgame here is tax simplification (and why wouldn’t it be?), wouldn’t it be nice if we could abolish IHT and stamp duty at the same time and replace both with an extension of the CGT regime?