Inheritance tax ‘should be abolished’ Johnson and Sunak told: ‘No justification!’

Laura Kuenssberg grills Rishi Sunak on taxation rise

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Labour Party leader Sir Keir Starmer is facing increasing pressure to call for a rise in wealth taxes as an alternative to the Government’s National Insurance hike. The leader of Britain’s trade unions, Frances O’Grady, declared at the Trade Union Congress (TUC) conference yesterday: “Tax wealth to fund social care.” Her call came on the eve of MPs debating the legislation to enact Prime Minister Boris Johnson’s National Insurance hike ‒ to boost NHS funding and help pay for social care reform in England.

Ms O’Grady’s demand echoes that of Mayor of Greater Manchester, Andy Burnham, who also laid out plans for wealth taxes to fund social care reform.

One tax which could be looked at is inheritance tax, but economist at the free-market Institute of Economic Affairs, Julian Jessop, tells the levy should be abolished altogether.

He said: “I’m not a fan of inheritance tax because it isn’t obvious to me why someone should have to pay more tax because they have died.

“People should be free to build up assets and pay tax on the assets as they are going along, that’s fine. There might be a case for taxing the capital gains on your first home as well as your second home.

“The idea you should pay a tax bill because you have died, I don’t really see any justification for that.

“My personal view is that it should be abolished, I just don’t see what it is about dying that means you should pay tax. It doesn’t make an awful lot of sense to me.”

Inheritance tax is currently paid on anything above the £325,000 threshold – which was frozen until 2016 by Chancellor Rishi Sunak in March’s Budget.

This move means that, while inheritance tax raked in a record amount last year, it is likely to bring in more cash for the Government in the future.

Capital gains tax is another wealth tax which could be changed.

It is a tax applied to the gain from the sale of something you own, and typically charged on things like shares, properties, businesses and other high value items.

There is an annual capital gains tax allowance of £12,300, and the rate you pay depends on whether you are a basic rate or higher rate taxpayer.

However, reports suggest the Government could align capital gains tax with income tax, which could see the highest rate paid – currently 28 percent on residential property – increase to 45 percent.

Mr Jessop believes this would lead to an unfair “triple taxation”.

He said: “The whole problem with inheritance tax and capital gains tax is a lot of them are running into the risk of being double or triple taxation.

“This is investments built up on the back of income that people have already paid tax on, so I think you should tax income not capital otherwise you discourage people from saving and investing.

“It’s another good example of how there isn’t an easy win here, if you want to get more money out of the economy it really needs to be based on income rather than wealth or anything else.”

However, other experts believe that wealth taxes would be the fairest way to pay for social care reforms.

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Analyst at AJ Bell, Tom Selby, told that wealth taxes would be the best way to do this, and added it is “likely” capital gains tax will be aligned with income tax.

He said: “The Office for Tax Simplification’s proposals edged towards aligning the two taxes.

“The impact of that would be someone disposing of an asset would pay significantly more tax than they do at the moment.

“There would be a big impact on landlords for example, people who have second properties.

“At the moment, capital gains tax is charged at 10 percent or 20 percent depending on whether you are a lower rate or higher rate taxpayer.

“If this was aligned with income tax, you would be looking at a tax rate of 20 percent, 40 percent or even 45 percent.

“So if you went down that route, anyone with significant assets or multiple properties could see a big impact on the value of their property.”

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