At Altor we like to avoid the obvious conclusion, our own confirmation bias and challenge our own thinking. So we thought we would start laying out the counter-point to some of the most widely held views (including our own) in financial services, that inheritance tax is a bad thing.
Clive Cowdrey the very successful businessman and philanthropist responsible for the Resolution Foundation has this to say.
Then, at the end of our lives, we do not get asked to hand it back. I find this almost unbelievable. The natural moment of handing wealth back to society seems to be at death. I am a huge fan of inheritance tax. During your life, you should be able to enjoy it, spend it, invest it, give it away as you wish without guilt or fear. That is fine as long as it is in the context of a generational reset. At my death, I should give my wealth back to the country. I have six children. The thought that I can give 60% of my wealth to only six of the five and a half million children in the country and I get to name them – that strikes me as bizarre.
Isn’t this an interesting take on a tax that generally raises the opposite and often visceral reaction. By contrast we remember well George Osborne’s million pound nil rate band promise. A policy that seemed to play well with the press and electorate despite the fact it would have only benefited a tiny majority. It seems that the majority have a distaste for a ‘death tax’ whether it impacts them or not.
There seems to be two things going on with those that dislike inheritance tax (or tax more generally). The first is a dislike of the ‘taxman’ and the second is a perception that our wealth has been ‘earnt’ and is therefore ours.
On the first point it helps not to refer to the taxman but think of the tax we pay as going towards whatever it is that we value. If you have had excellent NHS treatment, drive on roads or benefitted from schooling for your children then view it in those terms. We all have ways that we think the tax could be spent more effectively but the majority of tax goes to everyday, important things.
The second point is trickier because of our own internal bias towards overestimating our ‘contribution’ to the wealth we have gathered. There is plenty of evidence of various market forces increasing the wealth of a portion of the population in recent years. Even ignoring the multi-decade rise in house prices in the UK which has driven wealth from younger to older generations, in more recent years we have had money printing which has suppressed earnings and grown capital (again effecting the generations differently). Yet speak to most people and they feel that they have ‘earnt’ every pound they own. In this context it is not hard to see why the natural desire is to spend or gift to family the fruits of a lifetime’s labour.
If you want a good argument as to why luck plays a bigger part in what successful people achieve than they themselves admit read the excellent Malcolm Gladwell’s Outliers.
Clive’s point is that having taken wealth into his own hands during his lifetime, he is happy to give it back to all of us on his death. Whether he would personally admit that he was in the right place at the right time to benefit from life company consolidation he gets that the money he has accrued is his to spend whilst he is still alive but then he owes it back to all of us.
Read more about Clive’s charitable work here.