Many Eastern European countries, including the Baltic States and Russia, have adopted a flat tax system. The theory behind flat taxes contains two main arguments. First, by having a single rate of tax, the system is simple; people understand what they are required to pay. The second says that by setting the flat tax at a reasonable rate, the motive for wealthy people to avoid paying is blunted.
The latter argument seems to hold water when looking at UK inheritance tax statistics. In 2003/04 (the most recent HMRC data available), 55% of estates valued between £300,000 and £500,000 were taxed, yet only 50% of estates between £500,000 and £1,000,000 were caught in the IHT net. Unfortunately, the politicians running the Treasury don’t see the logic, particularly when it comes to bequeathing pension wealth to the next generation. The recent Budget has confirmed the intention to legislate for a 70% rate of tax when any residual ASP funds are passed to other scheme members. IHT is also...
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