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OPINION

Where do you stand on inheritance?

Where do you stand on inheritance?
June 9, 2017
Where do you stand on inheritance?

Why do we feel so strongly about making sure our families inherit? Partly it's that primal instinct: it's mine, therefore it's my children's and because in life we share our homes and money with our nearest and dearest, when we've gone we want things to stay the same. Partly, too, it's because giving/leaving our children money that isn't income from a job will improve their financial security - it's a chance to pay off a mortgage or university fees or to move up or get on the housing ladder. In fact, soaring house prices are one of the reasons why inheritance tax has become such a source of debate and distress (and for others, disgust). As family homes have increased in value, parents worry they will not be able to pass it down intact, hence the additional shelter for property introduced by George Osborne. Even Labour helped families by allowing, 10 years ago, the transfer of unused nil-rate bands between spouses.

Laws that fight people's natural sense of justice never work (almost 60 per cent of people are flatly opposed to inheritance tax according to a YouGov poll) and so a truce has been patched into place for wealth transfers: the state permits a certain amount of wealth to be passed on tax-free, and after that an unlimited amount to be passed on minus 40 per cent tax.

But many argue that the state should take more, even take it all. You might say the state doesn't have any claim or entitlement to your assets, but others believe your children don't either.

The argument here is that by allowing children to inherit, society is furthering inequality. Because you are far more likely to inherit money if you were born into a well-off family, you are already privileged - while children born into poverty won't have any such luck. To prevent this, the argument goes, all assets should pass to the state, which can ensure that your wealth is redistributed fairly once you cease to exist. Your wishes should be ignored as children have no moral claim to money they didn't earn. Instead, your money could "be used to pay the salaries of 60 new special needs teaching assistants at particularly under-resourced primary schools… or given to random people who grew up in poverty", says one commentator.

Opposition to family wealth transfers often focus on the "unearned" aspect: house price inflation has made many people lucky, but why should their children be lucky too? Well, possibly because many more ordinary people, who have never tasted a silver spoon and could do with a helping hand as much as the next person, are benefiting from inheritances thanks to those very house price rises.

There's another point worth making from our tax feature on page 28: shares - not "unearned" house price gains - are actually the biggest contributor to inheritance tax coffers.

For the truly rich, none of this matters - they can pass wealth on during their lifetime - it's the less rich who continue to have need of their houses and money that have to wait until death to pass their assets on.

There are solutions that might satisfy all sides. For example, you could tax not the estate but the recipients. The higher their income and the more they inherit during their lifetimes, the bigger the tax bill.

Whichever party forms the next government (we're going to press before the outcome is known), the inheritance tax exemption will be changing: rising under the Tories and falling under Labour.