Unearned Wealth (0611/14)



Alice Thomson uses her column in The Times to argue that people with money won't blow their pensions on foreign travel and fancy cars, but will use it wisely to invest in their children.

But in the process she points to two famous 'socialist' families, the Benns and the Milibands, have both used perfectly legitimate tax avoidance measures to pass the bulk of their estate onto their children without paying a significant sum in inheritance tax.

Now I always thought that people on the 'left' of politics were in favour of a tax on accumulated wealth and raising less of the tax take on people's income - because the latter is earned while the former is not and is often just based on rising property prices.

Yet it appears I'm wrong.

Forget cruises. Our money will go to our kids


By Alice Thomson - The Times

Britons won’t waste their pensions. Inheritance is too important to us – so raising the tax threshold will be a vote-winner

Even in the Treasury they must be getting nervous. What will happen if every elderly person decides to take out his or her pension and blow it on a cruise to the Antarctic or on a Range Rover? They could do so legally next year. It would give the Treasury a quick windfall in taxes but would be a nightmare in years to come when the state has to pick up more care bills.

Research by Ipsos MORI suggests that 200,000 people plan to cash in on their pensions next year after George Osborne scrapped budget rules forcing pension savers to buy an annuity. But they won’t splurge it all — not in Britain. More than other nations, this country is obsessed with handing on its inheritance.

If you study the poll, nearly a quarter say they will go on a holiday and 8 per cent will buy a car but the majority want to spend it on buying additional properties, on home improvements and their families. They’re investing it in their children’s future.

The desire to provide for the next generation is innate in the British psyche. It even overrides political belief. Look at Tony Benn: he abandoned a lifetime of principles and his quest for “equality of opportunity” for the sake of passing on money to his four children. The former Labour cabinet minister left them his estate of £5,085,000 rather than donate the money to his favourite causes.

Under a “deed of variation”, their inheritance tax will have been substantially reduced. This socialist rarely spent money on himself, but as he once told me in an emotional interview after his adored wife’s death: “My family is my life.”

Benn, whose father was Viscount Stansgate, obviously wanted his children and grandchildren to be blessed with the same advantages given to him. Ed Miliband’s mother presumably felt the same when she handed a share of her house to her two boys after her husband’s death.

This belief, strangely, is strongest now not in the aristocracy, who tend to be more accepting of a family’s gradual decline, but in the middle classes, who are desperate to ensure that their children and grandchildren can go to university, scramble up the property ladder and enjoy a similar lifestyle to themselves — or perhaps inherit funds to set up businesses.

The new rich in Britain also prefer their progeny to philanthropy. While in America Andrew Carnegie set the tone with his admonishment that “he who dies possessed of enormous sums will die disgraced”, British entrepreneurs are half as likely as Americans to give to charity and worry less that their children may be corrupted by wealth.

The British tax system has tried to militate against this desire to build up the family coffers. While Australia, Israel, Russia and New Zealand have scrapped death duties altogether, the British paid £3.5 billion in inheritance tax in the last financial year.

British parents are fiercely protective of the next generation. Even when they are old and grey and full of sleep and their children want them to spend their money on a care home, they are reluctant to do so. Nearly 70 per cent said that they wanted to hand something on, concerned that their children would flounder without help in an ever more competitive, insecure world.

Mr Osborne understands this sentiment, which is why when Gordon Brown was prime minister and he was the shadow chancellor, he announced he would like to raise the inheritance tax threshold if the Tories were in power. The plan was so popular it dissuaded Mr Brown from holding a snap election that he might have won.

The Tories had seen research by the Public Policy Unit at Oxford University that showed that half the participants in a focus group on inheritance were implacably opposed to the tax on principle. Just one of the 32-strong group supported it. Despite the fact that only 6 per cent of Britons were liable to pay it at the time, they admired the aspiration to help the next generation.

This month the prime minister gave his clearest hint yet that a future Conservative government would finally lift the threshold. He told a group of pensioners: “Inheritance tax should only be paid by the very richest. It shouldn’t be paid by those who have worked hard and saved and bought a family house.”

It’s the same with the mansion tax. The Tories initially liked the idea of taxing accumulated property wealth rather than hard-earned income. They costed it out, linking it to a cut in income tax but they came up against the same problem. Many homes are the nest egg for the next generation lived in by people with few other assets. The biggest policy disagreement of last month’s Labour conference was over the party’s plan to introduce the tax on properties worth more than £2 million. The London mayoral candidates and several donors cautioned against it.

Economists, surprised by the increasing urge to bequeath rather than spend, have identified three sorts of motive: egotistic, strategic and altruistic. A few, the egotists, want to see their name live on; others, like King Lear, may use it strategically to ensure that their children still visit and care for them in the hope of rewards; but by far the largest group appear to be the altruistic.

We care deeply about our children’s welfare, so we leave them what we can rather than spending it all on ourselves. This parental love may not be meritocratic, but it is responsible and admirable — which is why the elderly should be trusted to look after their pensions.

Popular posts from this blog

SNP - Conspiracy of Silence

LGB Rights - Hijacked By Intolerant Zealots!