Inheritance tax change not as generous as it sounds

By Savi Hensman

April 13, 2015

The inheritance tax threshold will be raised if the Conservatives win the election, David Cameron, the UK Prime Minister pledged. This would benefit some home-owners in areas with high property prices. But, even for them, the deal is not as good as it might sound.

At present this tax is paid on properties worth over £325,000 or, if the previous owners had been married (since the allowance is transferred on the death of spouse or civil partner), £650,000.

This would rise to £500,000, or £1million if inherited from a couple who have both died. However it would gradually taper away for properties worth over £2 million.

The plan "supports the basic human instinct to provide for your children", said George Osborne, the Chancellor, on BBC. But few families would gain anything.

For the most part, people who are already rich would benefit, as well as some ordinary home-owners – largely in London and the South East – where property values have soared. “The vast majority of estates (over 90 per cent)” do not pay the tax at present “and therefore would not benefit”, the Institute for Fiscal Studies commented.

Even among the small minority who would gain, however, this would have to be offset against the cost of cuts in health and social services and social security and increasing NHS privatisation. It would be part of an austerity package based on whittling away public (and publicly accountable) services and insurance.

As news of struggling emergency departments and fears of charges hit the headlines, the Conservative Party has promised some extra funding for the NHS. However the Chancellor, when repeatedly asked how this would be paid for, failed to answer.

Increasingly tight rationing means that accessing adequate health and social care, especially for people with long-term needs, has been getting harder. Those who might previously have received a free or low-cost service now sometimes have to pay. This trend is likely to continue unless there is a major policy shift.

In addition, budgets for key health services are expected to be handed to private companies in some areas. This would be probably rolled out elsewhere unless the government changed. Profit might offer an added incentive to cut the availability of treatment and level of staff training.

For instance, suppose you were an increasingly frail widow with little in the way of savings but wanting to pass on your house to your son. You might find yourself struggling to pay for the extra home care you needed for a not too undignified or uncomfortable life, if the council assessed you as eligible for two hours of support a day when you really required four hours.

Just a couple of extra hours’ assistance per day from an agency charging £16 per hour would amount to almost £47,000 over the course of four years.

You might also be faced with the dilemma of having to pay for medical tests and treatment which would previously have been free. Private healthcare costs could quickly mount, forcing you to borrow heavily against the value of the house and eating into the amount your children could inherit.

A colonoscopy, say, might cost £2,000, a knee replacement £13,000. Such costs can quickly mount.

Even if you spent your final years in reasonably good health, far from your family’s future being secure, they would be faced with a struggle to thrive, maybe even survive, in a society tainted by insecurity, except for the very rich.

Your son might not have to worry about bedroom tax. But if he had a stroke, it might be a lottery as to whether he got proper rehabilitation treatment, or assistance to eat, drink and go to the toilet while he still needed it. If he were too severely disabled to return to work, his benefits would probably not meet basic living costs, and he would be at continuous risk of being left cold and hungry as the result of sanctions.

To a few people other than the rich, the notion of a higher inheritance tax threshold might seem to offer the chance of financial gain. But this should be balanced against the possibility of heavy extra costs amidst worsening austerity.

It is time to switch course, to help create a world where people do not face constant insecurity and, in many cases, preventable suffering.

* More on the issues in the 2015 General Election from Ekklesia: http://www.ekklesia.co.uk/generalelection2015

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© Savitri Hensman is a widely published Christian commentator on politics, welfare, religion and more. An Ekklesia associate, she works in the equalities and care sector.