Britain should replace traditional inheritance tax with a fairer ‘gift tax’ to help "give people similar life chances," says Merryn Somerset Webb.
Amid the fury surrounding the Prime Minister’s personal finances, focus has returned to the controversial principles of UK inheritance tax.
The threshold will be at the £1million mark by the year 2020, a move that aims to “take the family home out of inheritance tax for all but the richest," according to Chancellor George Osborne.
However, Webb, Editor-in-Chief of MoneyWeek, believes if we are to give everyone an equal shot at prosperity, we must first reform the current methods of inheritance tax.
Speaking to Julia Hartley-Brewer, she said: “I would change the entire emphasis on inheritance tax, get rid of it and introduce something we could call a gift tax, which taxes unearned income at the same amount as earned income.
“People persist in thinking of it [inheritance tax] as tax on a dead person, but dead people don’t pay taxes. It’s the heir that’s paying the inheritance tax, so it should effectively be seen as an income tax.”
Webb is a big supporter of the latest pension rule relating to inheritance tax, and feels it could be a model on which to base future tax legislation.
“The new pensions rule whereby anyone can leave their pension on death to their children, there’s no inheritance tax on that,” she explained. “However, when they withdraw from it, they will pay tax at their marginal rate. There is no IHT, but there is income tax and that is a gift tax. “
There have been calls from some quarters to scrap inheritance tax altogether, but Webb believes it’s imperative to have some form of tax to achieve as close to equality as possible, adding: “If you believe in meritocracy, if you believe in equality, if you believe in people having similar life chances then it makes sense to have some kind of inheritance tax, some way of taxing unearned income which is effectively what inheritance tax is.”