What is the British government up to? With the debacle surrounding the introduction of the pre-owned...
What is the British government up to? With the debacle surrounding the introduction of the pre-owned asset tax, it has not only caused a huge amount of turbulence in the life of industry, but has also given out highly mixed messages regarding whether we should be encouraged to save.
When Chancellor Gordon Brown warned that inheritance tax schemes would be targeted in the Finance Bill 2004, there was a natural assumption that 'normal' investors would not be hit; that only obscure, highly complex schemes that allowed HNWIs to get away tax- free would come under the hammer.
Then it was announced that any gifted asset that was then still profited from would be counted as income. So every widow who had used the tried and tested route of giving her house to her children before she died would then be taxed as if she were a high earner, even when her actual income was minimal.
Then there was a question as to which insurance products would be affected, and which trust products. Now it seems that certain IHT schemes will be allowed to continue, while an apparently arbitrary set of them won't be, requiring an expensive reconstruction of these structures.
The confusion is bad enough, but when the tax is backdated 20 years, it is going against one of the principles of fair lawmaking - that people should only be penalised if they know that they are going against the letter, or at least the spirit, of the law.
At the moment where taxation can be retroactive, it becomes a ludicrous game of Blind Man's Buff, where the taxpayer wanders around hoping that he's not going to bump into any obstacles, but with no real clue how to avoid doing so. Except, to stretch the analogy, by listening out for the titters of those who are taunting him.
The British government has to decide whether it is trying to encourage savings or not - as the average Brit is now more indebted than he has ever been, it is deeply unhelpful and discouraging to chase those who have used the available tools to increase the funds available to them in retirement.
In any case, there is a fundamental problem of fairness with the whole idea of an inheritance tax. It is not based on expenditure or use of the state's resources, or income. It is simply a blanket redistribution of assets and as such it is has a cooling effect on savings. And now, with such low minimum levels, an increasingly high proportion of people are being targeted by this 'rich tax'.
The best thing the British government could do is to abolish the tax altogether and redistribute the tax burden on a more sensible basis, whether that be income, corporate tax, or in pursuit of policy as specific disincentives on activities the government wants to discourage.
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