Published online by Cambridge University Press: 02 January 2018
Statistics from HM Revenue & Customs predict that receipts from inheritance tax will amount to some £3.56 billion in the tax year 2006/07. This compares to £1.68 billion in 1997/98. This paper explores the reason for the large increase in inheritance tax revenues and, in the light of those findings, together with a consideration of the recent public reaction to the changes to the inheritance taxation of trusts announced in the Budget 2006 and incorporated in the Finance Act 2006, argues that, whereas the justification for a tax on the value of property in a person’s estate on death (or within a certain number of years before death) was rooted in equity, equity now forms the argument for its abolition or, at least, its substantial reform.
1. Chancellor of the Exchequer, the Rt Hon Kenneth Clarke MP, Budget speech, Hansard HC Deb, vol 286, col 169, 26 November 1996.
2. In Inheritance Tax: A New Direction (December 2004), the third in a series of Conservative Party consultation documents entitled ‘Towards a Lower Tax Economy’, five possible options for making inheritance tax fairer and simpler were canvassed, including its abolition. It is clear from the brevity with which that option was discussed that it was not the favoured one. And despite the finding of the report of the Conservative’s Tax Reform Commission (Tax Matters: Reforming the Tax System (19 October, 2006)), chaired by former Conservative Government Cabinet Minister, Lord Forsyth, that inheritance tax should be abolished, it appears that David Cameron, current leader of the Conservative Party, has ruled out immediate tax cuts (should his party come to power). It is quite clear that such tax reforms as there might be, are likely to affect the business sector rather than the personal one (Daily Telegraph 20 October 2006). This approach follows a previous report that the Conservatives, whilst currently looking at ways of easing the burden of inheritance tax, including the possibility of exempting a deceased person’s main home from the 40% levy, have ruled out any early move for its abolition (Daily Telegraph 23 August 2006).
3. Whilst New Zealand abolished its estate duty, its gift tax remains in place. It should be noted that Italy too has abolished its estates tax.
4. See, eg, Rawls, J. A Theory of Justice (Cambridge MA: Harvard University Press, revised edn, 1999)Google Scholar particularly pp 245–251; ; ch 7.
5. Up to that threshold (£300,000 for the tax year 2007/08), the estate is subject to the ‘nil rate band’.
6. Smith, A. (1776) The Wealth of Nations vol II (London: Methuen, Cannan edn, 1950) p 185.Google Scholar
7. See above n 5.
8. By means of potentially exempt transfers (PETs); see below. The very wealthy are able to do this and retain sufficient wealth for their own purposes.
9. Rubenstein, Wd Men of Property – The Very Wealthy in Britain since the Industrial Revolution (London: The Social Affairs Unit, 2006) p 39.Google Scholar
10. These figures are based on a comparison of Rightmove’s first published index of residential property prices in August 2002 (http://www.rightmove.co.uk/pdf/p/hpi/RealTimePropertyReport20August2002.pdf ), when the average house price was £147, 957, with that in March 2007 (http://www.rightmove.co.uk/pdf/p/hpi/HousePriceIndex19March2007), when it was £228,183. This shows a 64.8% increase in house prices in under 5 years. In contrast, the IHT threshold during that same period rose by only 14% (£250,000 in 2002/03, and £285,000 in 2006/07). The problem is even greater in particular ‘hotspots’ such as Winchester, where it is reported that the average cost of a home in the city council area is £330, 452 compared to £228,183 nationally (http://www.rightmove.co.uk/pdf/p/hpi/HousePriceIndex19March2007).
11. See above n 6, p 224.
12. See, eg, The Observer campaign for the abolition of IHT conducted in 2005–06, and below n 90.
13. See Bracewell-Milnes, B. Euthanasia for Death Duties: Putting Inheritance Tax Out of its Misery (London: Institute of Economic Affairs, 2002)Google Scholar. See also
14. J Tiley  3 BTR 255–256.
15. For a brief historical review of estate taxes up to CTT, see Tiley, J. Beattie’s Elements of Estate Duty (London: Butterworths, 1974) pp 1–6.Google Scholar For a review that includes CTT, see
16. Called inheritance taxes when confined to transfers on death.
17. A stamp tax, introduced in 1694, and repealed in 1894.
18. Introduced in 1881 to prevent the avoidance of probate duty by the making of lifetime gifts, and repealed in 1984.
19. Introduced in 1889 and repealed in 1894; this was supplementary to probate, succession and account duties.
20. Introduced in 1894, and repealed in 1975.
21. Introduced alongside estate duty in 1894 to compensate for the fact that, in relation to settlements, estate duty could only be levied on the first death. It was repealed in 1914, when estate duty on settled property was extended to deaths subsequent to the first death.
22. Although the law was not enacted until 13 March 1975, it was retrospective to 27 March 1974 in respect of inter vivos gifts and settled property. As pointed out by Wheatcroft, GSA and Hewson, Gd in Capital Transfer Tax (London: Sweet & Maxwell, 1975) p 2 Google Scholar, ‘[T]he best comment on this procedure was written by Adam Smith nearly 200 years ago in 1776 when he stated his second canon of taxation as follows: “The tax which each individual is bound to pay ought to be certain and not arbitrary. The time of payment, the manner of payment, the quantity to be paid ought all to be clear and plain to the contributor, as to every other person.” (The Wealth of Nations, Book 5, Chap. 11, Part II –“of taxes”) None of these facts were clear and plain until the Act was passed ’.
23. An inheritance duty, introduced in 1780 and not repealed until 1949.
24. Another inheritance duty, introduced in 1853 and also not repealed until 1949.
25. Death duties accounted for 14% of total tax revenues in 1901 compared to 7.6% in 1871: Mitchell, Br and Deane, P. Abstract of Historical Statistics (Cambridge: Cambridge University Press, 1962) pp 393–394 Google Scholar. For 2006/07, it is estimated that IHT will account for 0.8% of total tax revenues: HMRC Annual Receipts T1.2 (updated to December 2006).
26. Daunton, M. Trusting Leviathan: The Politics of Taxation in Britain 1799–1914 (Cambridge: Cambridge University Press, 2001) p 225 Google Scholar. See also
27. Despite the fact that, in 1796, it was William Pitt’s intention to include real property within legacy duty, he withdrew the measure. However, succession duty did charge land after 1853.
28. As with succession duty. For an analysis and a concise review of death duties, see Daunton, above n 26, ch 8.
29. Ibid, p 238.
30. At the time of its repeal in 1975, this period was 7 years.
31. Budget Debate Hansard HC Deb, vol 94, col 325, 19 March 1986. Admittedly, Roy Jenkins was arguing against the demise of CTT and the reinstatement of death duties, rather than advocating the general abolition of tax on a transfer of wealth.
32. See the Green Paper Taxation of Capital on Death: A Possible Inheritance Tax in Place of Estate Duty Cmnd 4930, March 1972.
33. It is interesting to note that, although Ireland has an acquisitions tax, capturing both lifetime gifts and bequests, cumulation is for periods only rather than for lifetime. The periods are not fixed and come to an end when the government decides that they should. I am indebted to Anne Corrigan, barrister and senior associate at Arthur Cox, Dublin, for providing this information in the course of a Tax Law Workshop held at Queens’ College, Cambridge on 27 April, 2007.
34. This was admitted by Cedric Sandford et al even though they were otherwise completely in favour of an accessions tax: CT Sanford, JRM Willis and DJ Ironside An Accessions Tax IFS Publications No 7 (September 1973). It was this issue that defeated the intention of the Labour Government in 1975 to introduce CTT as an accessions tax; see further below.
35. The original provisions were to be found in the Finance Act 1975, but were consolidated in the Capital Transfer Tax Act 1984.
36. This was a favoured trust in that it enabled a settlor to establish what was, in effect, a discretionary trust for the benefit of minors, but which was not subject to the discretionary trust regime provided that the beneficiary or beneficiaries would become entitled to the trust property or to an interest in it by the age of 25. This is discussed further below.
37. For an apocryphal tale illustrative of the economic consequences of CTT, see Wheatcroft and Hewson, above n 22, pp 12–13.
39. By virtue of Finance Act 1975, s 35 and Sch 8 as amended by Finance Act 1976, s 74, agricultural property which was the subject of a chargeable transfer and where it passed on death, was given a concessionary lower value.
40. Finance Act 1976, s 73 and Sch 10. Business property relief, which was introduced for CTT purposes only one year after the passing of the original Act, was given by reducing the value (by 50%) of business property passing by way of a chargeable transfer, subject to a cumulative limit of £500,000.
41. Finance Act 1975, s 29 and Sch 6, para 10. This limit was raised to £200,000 by Finance Act 1980, s 86, and to £250,000 by Finance Act 1982, s 92.
42. Finance (No 2) Act 1983, s 9.
43. Chown, J. A Guide to Capital Transfer Tax (London: Kogan Page, 1975) p 128 Google Scholar. As taxation correspondent of the Financial Times, head of his own international tax consultancy firm and co-founder of the Institute for Fiscal Studies, John Chown was able to speak with some authority on the matter.
44. Finance Act 1981, s 93.
45. By virtue of Finance Act 1986, s 100(1)(2).
46. Inheritance Tax Act (IHTA) 1984, s 7 and Sch 1. The UK, along with France, has the fourth highest top estate tax rate out of 50 countries surveyed by PricewaterhouseCoopers in 2005. Half of these countries had abolished the duty, and the average rate amongst the 50 was 13%: New International Survey Shows US Death Tax Rate among Highest (American Council for Capital Formation, July 2005); C Edwards Repealing the Federal Estate Tax Tax & Budget Bulletin, No 36 (Cato Institute, June 2006).
47. For the tax year 2007/08. The value up to the threshold is known as the nil rate band.
48. IHTA 1984, s 4.
49. Ibid, s 3A (4)(5).
51. The Civil Partnership Act 2004, which came into force on 5 December 2005, gave same-sex couples in the UK the opportunity of acquiring a legal status for their relationship, thus enabling them to gain rights and responsibilities that mirror those available to a married couple. Although taxation measures were not provided for in the Act itself, the Finance Act 2005, s 103 enables the Treasury to make regulations (see Tax and Civil Partnership Regulations 2005, SI 2005/3229) providing similar treatment for civil partners and civil partnerships as is given to married persons and marriage. The effect of this means that, from 5 December 2005, tax charges and reliefs have applied to civil partners and married couples alike.
52. IHTA 1984, s 18.
53. Sandford, C. Successful Tax Reform – Lessons from an Analysis of Tax Reform in Six Countries (Bath: Fiscal Publications, 1993) p 46.Google Scholar
54. IHTA 1984, ss 103–114.
55. Ibid, ss 115–124C.
56. For example, gifts for national purposes (IHTA 1984, s 25), maintenance funds for historic buildings (IHTA 1984, s 27) and conditional exemption for property of national, scientific, historic or artistic interest (IHTA 1984, ss 30–42).
57. IHTA 1984, s 19.
58. Capital Transfer Tax Act 1984, s 19.
59. For a full discussion of the meaning of this important term, which is not statutorily defined, see Pearson v IRC  2 All ER 479. Although this case concerned CTT, the same principles apply to IHT.
60. IHTA 1984, s 49.
61. Ibid, ss 3, 3A and 7(2).
62. Ibid, ss 61 and 64.
63. Ibid, s 65.
64. Ibid, s 71.
65. Ibid, s 3A(1) and (3).
66. Because the property was prevented from being ‘relevant property’.
67. IHTA 1984, ss 71(4) and 53(2).
68. Finance Act 1976, s 102.
69. See, eg, Ingram v IRC  1 AC 193; IRC v Eversden  EWCA Civ 668,  STC 822.
70. See Finance Act 1986, ss 102A–C, inserted by Finance Act 1999, s 104, reversing the effect of the Ingram judgment; Finance Act 1986, s 102(5), (5A)–(5C), inserted by Finance Act 2003, s 185, reversing the effect of Eversden.
71. The chargeable amount for any taxable period is the appropriate rental value less any payments made by the chargeable person in respect of the relevant land or chattels (Finance Act 2004, s 84 and Sch 15).
72. Wheatcroft and Hewson, above n 22, p 8.
73. Sandford, above n 73, p 52.
74. Hansard HL Deb, vol 684, col 470, 10 July 2006. See also the more recent comment by Lord Burnett that ‘those who are very rich can afford to avoid tax, or at least most of it’: Hansard HL Deb, vol 689, col 451, 1 February 2007. The case of Phizackerley v Revenue & Customs  UKSPC 591,  STC (SCD) 328, widely reported in the national press, is evidence of the difficulty of minimising IHT experienced by those with relatively modest means, whose ‘wealth’ is tied up almost exclusively in their homes.
75. BN 25.
76. See, eg, the self-contained code for real estate investment trusts.
77. The then Chancellor of the Exchequer.
78. This was something Denis Healey had reportedly said on the eve of the 1974 General Election (although no actual reports can be found) and which, according to David Smith, Sunday Times 26 March 2006, the former Chancellor has denied saying.
79. Such a gift would remain exempt provided the donor survived the gift by 7 years; see above for a detailed discussion.
80. In a letter to The Times 24 March 2006.
81. December 2003, a subsequent consultation document (‘Modernising The Tax System for Trusts’, 13 August 2004) and a further discussion paper (‘Discussion Paper on the Modernisation of Trusts’, March 2005).
82. HMRC Guidance Note, March 2006.
83. HMRC, 8 March 2006.
84. HMRC BN 25.
85. IHTA 1984, s 3A(1A)(c)(ii). A disabled trust is one established either under the will of a deceased parent of that minor, or under the Criminal Injuries Compensation Scheme: IHTA 1984, s 71A(2); and a trust for disabled persons is defined in s 89(4)–(6) to include a person with a mental or physical disability.
86. IHTA 1984, s 3A(1A)(c)(iii). A bereaved minor is described as somebody under the age of 18 who has lost at least one parent: IHTA 1984, s 71C.
87. IHTA 1984, s 49.
88. Ibid, s 71D. An 18–25 trust operates to provide a measure of tax relief where property is held on trust for somebody who has not yet reached the age of 25, and who has lost at least one parent: IHTA 1984, s 71D(1).
89. See above n 1.
90. Populus poll conducted for the BBC, March 2006. This poll concerned only IHT. See also the Telegraph YouGov poll (Daily Telegraph 23 October, 2006), where 70% of all voters questioned favoured the abolition of IHT and the report of a survey in September 2006 showing that 75% of those surveyed thought the tax to be unfair: Guardian Unlimited, September 2006 (http://money.guardian.co.uk/print/0,,329570043-120485,00.html).
91. S Byers Sunday Telegraph 20 August 2006. It could be argued that, since IHT is levied on death, it is, in reality, a penalty on the recipient of the testator’s wealth, who has not worked hard for the money. However, this leaves out of account the intention of the testator/testatrix, who may very well resent that part of his or her industry will not go to the intended recipient but to the state instead.
92. In other jurisdictions, those who run private businesses or who are farmers suffer particularly from an estates tax; this problem is obviated in the UK through exemptions in these particular circumstances; see IHTA 1984, ss 103–114 and ss 115–124C.
93. Savings income (excluding dividend income) is subject to income tax at the rate (for 2007/08) of 20%; dividend income is paid after deduction of income tax at 10%. A basic rate taxpayer (ie somebody subject to tax at 22% (for 2007/08)) will have no further income tax to pay although a higher rate taxpayer, liable to income tax at 40% (for 2007/08), will have to pay a further 20% and 30% (the difference between 40% and the savings rate of 20% and the dividend rate of 10%), respectively: Income and Corporation Taxes Act 1988, ss 1A and 1B.
94. See the website available at http://www.rightmove.co.uk/pdf/p/hpi/HousePriceIndex19March2007 and see above n 10. The Financial Times House Price Index, which uses data from HM Land Registry and a statistical model to collate information from other published house price figures, shows the national average price to be £213,097.
95. See the website available at http://news.bbc.co.uk/1/shared/spl/hi/in_depth/uk_house_prices/html/houses.stm. These figures must cast doubt over the comment made by Lord Davies of Oldham to the effect that the ‘house price dimension does not stand up to close examination’: Hansard HL Deb, vol 689, col 465, 1 February, 2007.
96. See above n 6.
97. In the recent House of Lords debate on IHT, Lord Burnett said, ‘I remind your Lordships that this tax and its predecessors – estate duty and capital transfer tax – were designed to be paid by the very wealthy’: Hansard HL Deb, vol 689, col 451, 1 February, 2007.
98. Denis Healey.
99. Wheatcroft and Hewson, above n 22, p 8. A proposed wealth tax was another way in which it was believed that the large inequalities of wealth distribution could be addressed.
100. W Gale and J Slemrod Rhetoric and Economics in the Estate Tax Debate (final draft, 22 May 2001) Paper Prepared for the National Tax Association Spring Symposium (Washington DC, 7–8 May 2001), available at http://www.brookings.edu/views/papers/gale/20010522.pdf.
101. Smith, Jp Unequal Wealth and the Incentives to Save (Santa Monica, CA: Rand Corporation, 1995) p 16.Google Scholar
102. Research was undertaken over a number of years in the 1970s, culminating in the observation that ‘[I]t is difficult to resist the conclusion that inheritance has been the most important single source of wealth inequality in the fairly recent past in twentieth century Britain’: Harbury, C. and Hitchens, D. Inheritance and Wealth Inequality in Britain (London: George Allen and Unwin, 1979) p 136 Google Scholar, but none more recent than this.
103. S Wheelan The Sunday Times ‘Rich List’ – Britain’s Wealthiest 1000 (30 April 2001), available at http://www.wsws.org/articles/2001/apr2001/rich-a30.shtml.
104. ‘The Sunday Times Rich List’ The Sunday Times 29 April, 2007.
105. Above n 100, pp 23–24.
106. Above n 4, p 144.
107. Ibid. In a similar fashion, Dominic Maxwell, who calls the double taxation argument a ‘myth’, shares the view that multiple taxation is common, and states that ‘[T]ransactions, not bank notes, are the proper subject of taxation’: Fair Dues: Towards a more Progressive Inheritance Tax (London: Institute for Public Policy Research, 2004) p 11. To suggest that IHT is charged on a ‘transaction’ is quite simply wrong, since it is imposed on the value of the estate of the deceased immediately before his or her death. It is death that triggers the charge, not the actual transfer of that wealth to another (although the identity of the transferee may become relevant for the purpose of certain exemptions); that is the nature of a mutation duty as opposed to an accessions tax.
108. DW Haslett ‘Is Inheritance Justified?’ (1986) 15(2) Philosophy and Public Affairs 122 at 143. By contrast to the present argument, these words were written in the context of abolishing the freedom to leave inheritances. The author was of the view that although, at the time of writing, there was little evidence of public support of such an idea, that public support would eventually come provided that the idea could be justified.
109. The community charge was introduced by the Local Government Finance Act 1988.
110. This phrase, coined by Musgrave, Ra The Theory of Public Finance (New York: McGraw-Hill, 1959)Google Scholar is strictly applied to the scenario where individuals may work less as a result of a tax increase to spite the government.
111. HMRC statistics (updated to December 2006), Table 1.2, available at http://www.hmrc.gov.uk/stats/tax_receipts/table1-2.pdf. The figures for 2006/07 are forecasts consistent with those published in the December 2006 Pre-Budget Report, but fall outside the scope of National Statistics.
112. HMRC statistics (updated to December 2006), Table 1.4, available at http://www.hmrc.gov.uk/stats/income_tax/table1-4.pdf.
113. HMRC statistics, Table 12.4, available at http://www.hmrc.gov.uk/stats/inheritance_tax/12.4.pdf.
114. The data are from the second Halifax Savings Report HBOS press release, 25 February 2006. According to Halifax figures, the price of homes has risen by an average of 187% in the last decade; this compares with a rise in shares of 61% during the same period: Sunday Times 29 October, 2006.
115. Committee of Public Accounts Inheritance Tax Twenty-Ninth Report of Session 2004–05, HC 174, para 1.2.
116. Comptroller & Auditor General’s Report Inheritance Tax: A Progress Report Session 1998–99, HC 251, para 1.1.
117. ‘Executive Summary’, Comptroller & Auditor General’s Report, paras 1 and 1.1, Q 96; Inland Revenue Budget 2005, Notice PN2, 16 March 2005.
118. Both of these alternatives were canvassed in Inheritance Tax: A New Direction, above n 2. It should be noted that the principal private residence is exempt from a charge to capital gains tax: Taxation of Capital Gains Act 1992, s 222.
119. Ibid, at p.8.
121. The nil rate band; see above n 5.
122. For example, life insurance trusts and offshore trusts.
123. See above nn 72–74. The exemption that permits ‘normal expenditure out of income’ (IHTA 1984, s 21) is especially favourble to those with large amounts of wealth.
124. The Structure and Reform of Direct Taxation, Report of a Committee chaired by Professor JE Meade (London: The Institute for Fiscal Studies, 1978) p 41.
125. The Commission on Taxation and Citizenship Paying for Progress: A New Politics of Tax for Public Spending (London: Fabian Society, 2000);
126. Maxwell, D. Fair Dues: Towards a more Progressive Inheritance Tax (London: Institute for Public Policy Research, 2004).Google Scholar
127. Murphy and Nagel, above n 4, p 12.
128. Whether income tax rates in the UK are truly progressive any longer is, however, questionable, given a single higher rate band of 40%, which starts with taxable income of only £39,825 (for the tax year 2007/08).
129. For reasons explained below, a proposed wealth tax never came to fruition in the UK. Such a tax has also been rejected by.
130. Such as estate duty, capital transfer tax and inheritance tax.
131. The Structure and Reform of Direct Taxation, above n 124, p 40. See also pp 317–318.
132. This raises the issue of whether the imposition of a tax on this basis might be in breach of Art 1 of Protocol 1 (peaceful possession of property) of the European Convention for the Protection of Human Rights and Fundamental Freedoms 1950. Given the caveat to that Convention right expressly reserves to Member States the right to raise taxes, it is thought that this is unlikely. Moreover, this author has previously expressed the view that taxpayers are unlikely to be successful in challenging government tax policy generally (as opposed to administrative actions of HMRC), since courts allow governments a very wide margin of appreciation; see Lee, N. The effect of the Human Rights Act on taxation policy and administration’ (2004) 2(2) Journal of Tax Research 155 Google Scholar. Note also the view of Robert Nozick in that, in effect, all taxation is confiscatory and prevents individuals from disposing of their property as they would wish; see, in particular, pp 167–172.
133. See the Green Paper Wealth Tax Cmnd. 5704, 1974.
134. Sandford, C. More Key Issues in Tax Reform (Bath: Fiscal Publications, 1995) p 51.Google Scholar
135. Haslett, Dw Is inheritance justified’ (1986) 15(2) Philosophy and Public Affairs 122 Google Scholar.
136. HM Revenue & Customs National Statistics (8 May 2006), available at http://www.statistics.gov.uk/cci/nugget.asp?id=2; 1976 represents the year after estate duty was replaced by CTT; 1986 was the year in which IHT replaced CTT.
137. According to an analysis of recent figures (Department of Work and Pensions Households Below Average Income 1994/95–2005/06 (Leeds: Corporate Document Services, 2007), the number of people living in relative poverty (that is, living in households with less than 60% of the median income) actually rose between 2004/05 and 2005/06 from 12.1 million to 12.7 million (measuring incomes after housing costs) and from 10.0 million to 10.4 million (measuring incomes before housing costs): M Brewer et al Poverty and Inequality in the UK: 2007 Institute for Fiscal Studies, Presentation on 28 March, 2007.
138. See the Child Trust Funds Act 2004.
139. All children in the UK born after 31 August 2002 will have a child trust fund account, and will receive an initial payment of £250, with children being looked after by local authorities receiving a higher rate. Children from low-income families will receive a further payment of £250. It may be that, in the future, further payments into these funds will be made by the government, eg on a child’s seventh birthday; consultation on this continues.
140. Since all children are entitled to a child trust fund account, to which parents can contribute, it follows that the children of those with existing means who can afford to make the extra contributions will enjoy a very much larger asset on maturity; see Wikeley, N. Child trust funds – asset-based welfare or a recipe for increased inequality?’ (2004) 11 Journal of Social Security Law 189 Google Scholar.
141. Adam, S. Brewer, M. and Shephard, A. The Poverty Trade-Off: Work Incentives and Income Redistribution in Britain (London: Institute for Fiscal Studies, October 2006)Google Scholar. It is this author’s view that the working families’ tax credit was specifically designed to strengthen work incentives, being payable only if at least one of a couple was working. The separation of this credit into the working tax credit and the child tax credit, with child tax credit being payable irrespective of whether a member of the family was in work, was bound to have the reverse effect.
142. Haslett, above n 135, at 135. See also Duff, D. Taxing inherited wealth: a philosophical argument’ (1993) VI:1 Canadian Journal of Law and Jurisprudence 4 at 24–25Google Scholar.
143. Above n 4, p 115. The need for this type of control has clearly been demonstrated by events in 2006, which have brought to light the fact that political parties had found the means to circumvent the necessity of declaring donations made to them. See the Report of the Constitutional Affairs Select Committee: House of Commons Constitutional Affairs Committee Party Funding First Report of Session 2006–07, HC 163, 19 December 2006 and H Phillips Strengthening Democracy: Fair and Sustainable Funding of Political Parties, The Review of the Funding of Political Parties (15 March 2007), available at http://www.partyfundingreview.gov.uk/files/strengthening_democracy.pdf. See also O Gay, I White and R Kelly The Funding of Political Parties House of Commons Research Library Research Paper 07/34 (Parliament and Constitution Centre, 10 April 2007).
144. Duff, above n 142, at 7–8.
145. Budget Speech, The Chancellor of the Exchequer, James Callaghan Hansard HC Deb, vol 710, col 245, 6 April 1965.
147. Professor J Rudick, H. A proposal for an accessions tax’ (1945) 1 Tax Law Review 29 Google Scholar.
148. Sanford, Willis and Ironside, above n 34, p 10, para 1.24.
149. Duff, above n 142, at 8.
150. The hostility towards IHT was revealed in a piece of public opinion research on IHT carried out by the Institute for Public Policy Research and Oxford University, referred to in Maxwell, above n 107, p 13.
151. For an economist’s view, see Bracewell-Milnes, B. Will to Succeed: Inheritance without Taxation (London Adam Smith Institute, 1994)Google Scholar; Euthanasia for Death Duties, above n 13; N Kaldor ‘The income burden of capital taxes’ (1942) Summer Review of Economic Studies; reprinted in the American Economic Association’s Readings in the Economics of Taxation (Homewood IL: Richard D Irwin, 1949); G Erreygers ‘Views on inheritance in the history of economic thought’ in
152. HMRC Annual Receipts T1.2 (updated to December 2006).
153. See the changes introduced by the Finance Act 2006.
154. This percentage is based on the information in HMRC Annual Receipts, above n 152. Total tax revenues include the revenue from all the taxes administered by HMRC (which body represents the former Inland Revenue and Her Majesty’s Customs and Excise).
155. Bracewell-Milnes Euthanasia for Death Duties, above n 13, pp 28–29.
156. This is discussed below.
157. See above n 2. The Tax Commission’s proposals exempt any gain arising in respect of the value of the main private residence from CGT on death, in the same way that it is currently exempt on inter vivos disposals. This is an issue that needs further consideration, but is outside the scope of this paper.
158. For example, see the recent Liberal Democrat proposals to replace Air Passenger Duty with an aircraft tax, dependent upon the number of flights rather than the number of passengers, an increase in Vehicle Excise Duty for cars that cause the most pollution and an increase in fuel duty in line with inflation: Liberal Democrats Tax Commission Fairer, Simpler, Greener: Policy Paper No 75 (August 2006). Given that such taxes are meant to be helping the environment, it is thought that they would be tolerated by taxpayers.
159. Compliance costs are the costs incurred by taxpayers in ordering their affairs to take account of IHT, and by personal representatives in the course of administering taxpayers’ estates.
160. The table is extracted from HMRC Annual Report 2005/06 and Autumn Performance Report 2006 Cm 6983, December 2006.
161. Bracewell-Milnes Euthanasia for Death Duties, above n 13, p 28. This point was highlighted by Lord Sheikh in the recent House of Lords debate on IHT; see Hansard HL Deb, vol 689, col 457, 1 February, 2007.
162. See above nn 145 and 146. Put simply, capital gains tax is charged on the gain arising from the disposal of a capital asset.
163. Hansard HL Deb, vol 689, col 451, 1 February, 2007.
164. Because of the changes introduced by the Finance Act 2006, this mechanism will no longer be effective for IHT reliefs.
165. See above n 163.
166. Interestingly, William Gates Senior has campaigned against the abolition of the estate tax in the USA. See, eg, Forum on Estate Tax, Tax Policy Centre, with William Gates Senior as the featured speaker, available at http://www.taxpolicycentre.org/publications/template.cfm?PubID=900584.
167. Gale and Slemrod, above n 100.
168. Haslett, above n 108, at 146.
169. Ibid, at 147.
170. Taxation of Capital Gains Act 1992, s 62.
171. Ibid, s 4.
172. Ibid, s 58 as amended.
173. Ibid, s 222.
174. Ibid, s 224(3).
175. FA 1998, s 121; see Taxation of Chargeable Gains Act 1992, s 2A.
176. FA 2002, s 46; see Taxation of Chargeable Gains Act 1992, s 2A(5).
177. It has already been established that, for a large number of those with only moderate wealth, most of that wealth comprises the family home. If this were to be exempt, there would be no need for a valuation of it by the executors, thus reducing administrative and compliance costs.
178. Although it should be noted that there are limited ways (through Independent Savings Accounts (ISAs)) for investments to be made, allowing for both income and CGT relief.
179. New Zealand abolished its estates tax in 1999, but the gifts tax remains in place. It is for this reason, together with the fact that it has been said that part of the reason for the abolition of the estates tax was the fact of abolition of the estates tax in Australia and because of the free movement of nationals between New Zealand and Australia ( Sandford, C. Why Tax Systems Differ:A Comparative Study of the Political Economy of Taxation (Bath: Fiscal Publications, 2000) p 100 Google Scholar) that New Zealand is not specifically considered in this paper. Other countries to have abolished their estate taxes include Russia, Hong Kong and Italy, although the succession tax is to be reintroduced in Italy amidst criticism that the rules are being introduced by government rather than by Parliament and that they are poorly drafted; see Guardian Abroad 25 October 2006, available at http://www.guardianabroad.co.uk/finance-tax/article/144.
180. This article has not attempted to draw any comparison between the income tax rates of these countries because, as will be seen, the arguments for abolition were without reference to income tax. Of greater and more direct interest is the existence of an annual wealth tax, or a CGT charge on death. Indeed, in a recent House of Lords debate on IHT, Lord Burnett said, ‘Although I shall be adverting principally to that tax [inheritance tax], your Lordships will understand that our discussions would be incomplete if we did not also discuss the interrelationship of that tax with capital gains tax’ (Hansard HL Deb, vol 689, col 451, 1 February 2007). Both an annual wealth tax and CGT are referred to below. Moreover, whilst it is too early to evaluate the impact that the abolition of IGT has made in Sweden, it is interesting to note the lack of literature on the subject in Australia and Canada, suggesting that both countries have accepted, or are at least resigned to, abolition. Duff (see below n 181) believes that an estates tax should exist for redistributive purposes, but that politically it is unlikely to be reintroduced. The issue might be reawakened in Canada in light of the debate currently taking place in the USA over whether to abolish the federal estate tax. As Auerbach has pointed out, ‘The US has been struggling since 2001 with the question of whether to repeal its estates tax (current law would repeal it for one year, in 2010, before reinstating it)’: A Auerbach The Future of Capital Income Tax paper given for the annual lecture of the Institute for Fiscal Studies (4 September 2006). According to an editorial in the Wall Street Journal (8 July 2005), with a combined federal/state estate tax rate of above 50% on the estates of the wealthiest, the ‘U.S. now has the distinction of imposing the most onerous death tax in the industrialized world’.
181. D Duff ‘The abolition of wealth transfer taxes: lessons from Canada, Australia, and New Zealand’ (2005) 3 Pittsburgh Tax Review 72. A shorter version of this paper, dealing with Canada only, can be found in Tiley, J. (ed) Studies in the History of Tax Law (No 2) (Cambridge: Cambridge University Press, 2006) pp 309–334.Google Scholar
182. The Royal Commission on Taxation (Ottawa, Queen’s Printer, 1966).
183. Ibid, paras 368–380.
184. Ibid, para 39.
185. J Gans and A Leigh Did the Death of Australian Inheritance Taxes Affect Deaths? (June 2006), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=907250.
186. Pedrick, W Oh! to die down under! Abolition of death and gift duties in Australia’ (1981) 35 Tax Lawyer 113 at 114Google Scholar. Farming communities consistently complained that farms had to be sold in order to pay death duties. Of course, the same complaint could be made in respect of family businesses.
187. Duff, above n 181, at 74.
188. Ibid. at 108–109.
189. Swedish Krona.
190. (2004) 15(25) Prop 22. I am indebted to Johanna Hjalmarsson, Institute of Maritime Law, School of Law, University of Southampton, for her help in accessing this material and for translating from Swedish into English.
191. See I Joumard Tax Systems in European Countries OECD Economics Department Working Papers, No 301 (ECO/WKP (2001)27, 2001) p 27. The percentage is likely to be greater in forthcoming years, with the revaluation of homes for council tax purposes and the increase in that tax for many people.
192. For example, in 2000, Sweden’s age-related spending amounted to 29.0% of gross domestic product compared with the UK’s 15.6%; see ibid, p 8.
193. See above n 90.
194. Per Lord Burnett Hansard HL Deb, vol 869, col 452.
195. HMRC, above n 152.
196. To those who say that, although only a drop in the ocean, the revenues from IHT cannot simply be overlooked, it has already been argued that there are perfectly viable alternative means of raising the revenue that would be lost through the abolition of the tax.
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