Cut inheritance tax to 10% and make everyone pay it

I’ve written several times here about inheritance tax (IHT), and why of all the taxes there are, it seems in essence to be one of the least awful.

I’d change it so that it wasn’t a tax on the dead, but rather a tax on unearned gifts to the living (see my previous articles about the gift tax).

But, assuming the consensus is that the UK wants to continue to spend 40% or so of GDP on public services of one kind or another (which it is), I certainly wouldn’t be abolishing the idea of it or raising thresholds particularly.

Neil Collins makes the point nicely in his column in the FT this week. “Paying tax when dead certainly sounds better than paying it while still alive, and if we want a meritocratic society, the logic is unassailable.”

Collins’ solution to the current argument on the matter is pretty simple: drop the tax-free allowances, cut the rate to 10% and make everyone pay it on death.

At 10%, it wouldn’t be worth the expense and bother to the well-off of trying to avoid it as they do at the moment, and the resulting broadening of the tax base might even raise some real money (last year, IHT came in at a mere £3.4bn).

If it did, perhaps we could even cut the rate of tax on hard-earned income to something similar to that on unearned windfalls in response.

I prefer my idea of turning IHT into a gift tax, but this wouldn’t be a bad place to start changing what is currently a useless tax into a better one.