Inheritance Tax

Ranil Jayawardena Excerpts

Wednesday 17th January 2024 Westminster Hall

[Jon Trickett (Hemsworth) (Lab)]

I beg to move,

That this House has considered inheritance tax.

I am looking forward to your firm guidance from the Chair, Sir Robert. I am grateful to the House authorities for allowing us to have this important debate.

The whole British tax system is skewed in a very odd way. We simply do not tax wealth sufficiently, but we do tax income from work. Income from wealth is relatively untouched by the taxation system, but income from work is taxed and people feel the burden of it. If we were to redesign our whole tax system, I wonder whether that is the way we would structure it. My office wrote a report on this issue three years ago, suggesting a wealth tax. If there were to be a wealth tax, we might well be able to change the way we tax inheritance, but that is not the case; it is not a serious proposal for now, but it is something to think about in the longer term.

It is good to see so many Members here. I begin my reflections on inheritance tax with the following reflection: it is always interesting to look at the language politicians use, especially those from the governing party. When Labour proposes a spending commitment, the Government say that we have found a “magic money tree”. When the Tories find money to spend or give away in tax gifts, suddenly it is “wise”, “prudential” and “management of the economy”. Of course, it is no such thing; it is propaganda.

The right-wing papers are saying that there is some “fiscal headroom” in the Budget—in other words, the Treasury is sloshing around with money. But where has the money come from? It has come from hard-working people who are overtaxed on their income. There might be other ways to fund state services, but it is the working people who have created the additional money in the Treasury. That has been done through a cruel system, which is no longer quite as invisible as it was, called fiscal drag, whereby people’s wages and salaries are increasing but the threshold at which they pay tax is being held steady by a Conservative Government who have clearly set out to raise more money from working people. The fact that thresholds are being held steady while wages are rising means that people are paying more as a proportion of their income than they would have done if the thresholds had risen at the same rate.

[Mr Ranil Jayawardena (North East Hampshire) (Con)]

Will the hon. Gentleman give way?

[Jon Trickett]

There are a lot of Members present, so I will give way only once—twice at the most.

[Mr Jayawardena]

Given that the hon. Gentleman is concerned about fiscal drag, as am I, would he concede that, given that the £325,000 threshold for inheritance tax has been fixed since 2007, it should be increased in order to avoid fiscal drag?

[Jon Trickett]

I find that a very interesting intervention. I am not opposed to considering that idea as part of the wider debate, but let me return to the point I was trying to develop.

It looks as though right-wing ideologues in newspapers and elsewhere are hinting that there is a significant amount of money available in the Treasury. Those papers are saying that we should end inheritance tax or perhaps cut it. It would cost £7 billion of the Treasury’s reserve of money to abolish inheritance tax completely. I guess that all Members present will have been around their constituencies in the recent Christmas and new year recess, and they will have seen people hungry and living on the streets, schools closed because the concrete problem has not been resolved, hospitals with cruel waiting lists, people unable to heat their homes, and even unfilled potholes.

What we have seen in our own constituencies is true for the whole nation. There are massive pressures on our civil society and the way we live our lives. If we were the Treasury and had £7 billion, would we really want to hand over money to some of the richest people in our society, when all those needs are still there, and when maybe we should be trying to help people on lower pay with some assistance on tax? I don’t think so. I do not think it is a rational decision and a proper way to spend money, and nor do the public. In two recent polls, 75% said they were against a cut in or the abolition of inheritance tax.

[Mr Jayawardena]

Will the hon. Gentleman give way?

[Jon Trickett]

I said I would give way twice. The right hon. Gentleman has already had one intervention, so I will only take another from somebody else; a lot of people want to speak.

I am sure we are all clear on this, but let us remind ourselves how the system works. One argument that might be made is, “Are you really saying that if you’ve worked hard all your life and managed to buy a house, your descendants can’t inherit that house?” Well, the rules are quite clear. It is not as people might imagine, because a person is allowed half a million pounds with no inheritance tax on the house value. With a couple, however—whether they are married or in a civil partnership—the partner left behind after the other has died inherits the house with no tax; we all know that. When the second person in the marriage or civil partnership dies, the first person’s £500,000 is accumulated to the second person’s £500,000, so that is effectively £1 million per house. Nobody in a couple who owns a house in that particular way would pay any inheritance tax on the house, so it is a specious and false argument to say that inheritance tax would somehow deprive people of their houses.

Look at the figures. In Yorkshire, only one in 300 properties is worth more than £1 million. All the rest are worth substantially less. In the whole of Yorkshire, there are 7,500 households worth more than £1 million. Across the whole country—of 60-odd million people—there are 700,000 properties worth more than £1 million. It is important to put that on the record, before we go any further into the debate.

If someone leaves more than £1 million, they may well be required to pay inheritance tax. Let me deal with what actually happens, based on figures provided by the Financial Times, which are based on Treasury figures. If someone leaves an estate worth more than £5 million, they will find that the amount of money they pay in inheritance tax declines. The people between £1 million and £5 million are probably paying 40%—unless they have made certain arrangements—but the really wealthy estates above £5 million, where the power and wealth in our society resides, pay less and less tax the more wealthy they are. Hon. Members can see the graphs; they are freely available on the internet. The richest estates in our country pay virtually nothing at all in inheritance tax. Can that really be right? I do not believe it is morally justifiable.

I do not want to name too many very wealthy people, but let me name one, because it has been in the newspapers. The Duke of Westminster, one of the richest men in the country, inherited well over £6 billion—I think, nearly £7 billion—through various trusts and other arrangements, but according to the right-wing newspapers—the Daily Mail, Daily Express and others—the estates more or less avoided any form of tax at all. How can it possibly be right that that kind of wealth should be handed on, while people who work hard and have maybe managed to accumulate more than £1 million in their lifetimes are paying 40% tax on the residual amount they arrive at?

In Scotland—I have no doubt my hon. Friend the Member for Glasgow East (David Linden) from the SNP may well mention this—500 families own half of all the land. That is barely touched through the way we deal with inheritance. I do not think that is justifiable, when the half the land of a whole nation is held by 500 families.

I discovered something quite extraordinary in my constituency while researching this issue. I will not name anyone, because this case has not been in the papers. There is an estate of more than 3,000 acres in my area, with 5,000 acres elsewhere and a further 3,000 somewhere else. That large estate, in place since the 16th century, has been barely touched by any form of inheritance or wealth tax over the centuries. That estate remains in place. What is extraordinary is that there is an agreement between the Treasury and the people who leave these large estates that if they cannot pay the inheritance tax, they can donate a work of art. I will be interested to hear the Minister defend that.

It was extraordinary to find that the owners of that property in my constituency avoided inheritance tax on one of the largest estates in the country, which has been left untouched for four centuries, because they were able to gift to the nation a bookshelf—okay, it was a valuable bookshelf. That bookshelf was given in place of paying inheritance tax. How can that possibly be correct?

What is even more extraordinary is: where is that bookshelf now? It is in the very stately home where that particular family still has some residential rights. Of course, it is available for the public to see if they visit. None the less, it is extraordinary that someone earning £10,000 or £15,000 a year—struggling—is paying bloomin’ tax, but a multimillionaire with hundreds of millions of pounds and an estate can avoid tax by handing over a bookshelf that remains in the very house where their family have lived for centuries.

The senior economist at the Institute for Fiscal Studies, which is hardly a hotbed of Marxist thinking, said overnight that it is not in favour of changing inheritance tax, except to say that we should avoid all of the reliefs and the systems by which people can escape inheritance tax, which makes it unfair and skews the taxation system as a whole. It wants to see the loopholes that some of these richer families use closed. For example, it is possible to put money in a trust. If it is agricultural land that is being farmed, there is no inheritance tax on it. Such estates remain there—a blight on our system and a way of securing the continued existence of the British class system, which has caused so many problems for our country.

Let me turn from the very wealthy to other people who pay inheritance tax. Less than one in 25 people who die leave an estate that is subject to inheritance tax; that is under 4%. More than half the constituencies in the country pay no inheritance tax at all, or none that can be measured. That figure is from the Financial Times. Ending inheritance tax would not put a single penny into all those constituencies. There would be no benefit to them whatsoever, as far as I can see, from the relief of inheritance tax.

[Mr Jayawardena]

rose—

[Jon Trickett]

No, I will not give way—the right hon. Gentleman will have a chance to speak in a moment.

I want to illustrate what is happening. I think I am right in saying that, if inheritance tax were abolished, it would put £12 million back into the Minister’s constituency, which makes £60 million in a five-year Parliament. In all the 42 red wall seats in the north of England, which went from Labour to Tory, that sum is hardly more. All those seats together would raise £15 million a year in inheritance tax. Abolishing inheritance tax would put a fraction of the amount of wealth in our country back into those constituencies, and then only into the hands of the richest in our society.

--- Later in debate ---

[Peter Gibson (Darlington) (Con)]

It is a pleasure to serve under your chairmanship, Sir Robert, and I congratulate the hon. Member for Hemsworth (Jon Trickett) on securing this important debate.

As a practising solicitor—I draw the House’s attention to my entry in the Register of Members’ Financial Interests—it was common for me to provide advice to clients while they were planning for later life. While I was drafting wills and preparing powers of attorney, the dreaded subject of inheritance tax often came up. It is indeed a much-feared tax and a real motivator for many people to consider estate planning.

As house values have increased, many more families who never before would have considered themselves to be wealthy are brought into the scope of inheritance tax. For many, however, through proper planning and structures, it can be very much avoided. Indeed, it is often said that inheritance tax is a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue. As a Conservative, I believe that families should be able to keep as much of their money as possible and, ultimately, I would like to see the complete abolition of inheritance tax, when the time is right.

I only have a very short speech; I really only have one suggestion to put to the Minister. A number of years ago, additional nil-rate bands were introduced to enable a joint estate to leave up to £1 million free of inheritance tax. However, that privilege only extends to those who have children, either naturally or by adoption. It seems unfair that those who have children can be given a significant tax advantage that does not benefit those who either do not choose to have children or are unable to have children. To my mind, a much fairer approach would be to equalise the inheritance tax threshold at £500,000 for everyone, enabling even childless couples to leave an estate of up to £1 million free of tax.

[Mr Jayawardena]

I thank my hon. Friend for what he has said. Does he agree that by doing those sorts of things—lifting thresholds, taking people out of fiscal drag and giving more people the opportunity to benefit from a nil-rate band—we would actually be able to grow the economy? As the Swedish equivalent of the CBI has said,

“if you abolish a stupid tax that is complicated and forces wealthy people to leave the country”—

or, by extension, reduce the amount that people pay—

“you get more tax revenue…That is the Swedish experience.”

[Peter Gibson]

I completely agree with my right hon. Friend. We know that when we reduce a tax, the effect has the potential to cascade throughout families—and throughout the country, because not all beneficiaries of estates necessarily live in the constituency where the house that is left behind is situated.

I will conclude on that point. Will the Minister respond specifically to my point about the equalisation of rates for all individuals?