Covid-19: Death Duties and Inheritance Tax - Question

– in the House of Lords at 12:06 pm on 24th June 2021.

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Photo of Lord Truscott Lord Truscott Non-affiliated 12:06 pm, 24th June 2021

To ask Her Majesty’s Government what plans they have, if any, (1) to reintroduce death duties, or (2) to increase inheritance tax, to help pay for costs associated with the Covid-19 pandemic.

Photo of Baroness Penn Baroness Penn Baroness in Waiting (HM Household) (Whip)

My Lords, as announced at the Budget, rather than rising with inflation, the inheritance tax nil rate band and residence nil rate band will remain at £325,000 and £175,000 respectively until April 2026. Maintaining these thresholds at 2020-21 levels is forecast to raise almost £1 billion over the next five years. Alongside other announcements at the Budget, this will help rebuild public finances and allow the Government to invest in public services.

Photo of Lord Truscott Lord Truscott Non-affiliated

I thank the Minister for that reply but let us call a spade a spade: we are talking about death duties here, a tax on a deceased person’s estate. Would the Minister not agree that instead of facing yet another wealth or property tax, most people, especially those that are asset rich and cash poor, would prefer to pay tax after they pass away, hence the increasing popularity of equity release? A post-war level of death duties would raise £174 billion. Does the Minister also agree that this is the way to help pay for Covid and prevent a growing generational and societal inequality?

Photo of Baroness Penn Baroness Penn Baroness in Waiting (HM Household) (Whip)

My Lords, as I have set out, maintaining thresholds at their current levels will make a contribution towards repairing the public finances following Covid. However, in order to do that job, we will need to take a broader-based approach, and that is what the Government did at the last Budget, including through freezing personal tax allowances and raising corporation tax.

Photo of Baroness Bryan of Partick Baroness Bryan of Partick Labour

My Lords, does the Minister recognise that we have a highly regressive tax system in the UK? The effective tax rate for the wealthiest 10%, counting income and wealth combined, is 18%, and for the bottom 10% it is 42%. In any rational society, this would be reversed. Does the Minister agree with the IMF that wealth taxes need to rise to pay for the cost of fighting the pandemic?

Photo of Baroness Penn Baroness Penn Baroness in Waiting (HM Household) (Whip)

My Lords, in fact, the UK has one of the highest levels of wealth taxes in both the G7 and the OECD. We also have a highly progressive income tax system. The top 1% of income tax payers are projected to have paid over 29% of all income tax in 2019-20, an increase from 25% of all income tax in 2010-11.

Photo of Baroness Altmann Baroness Altmann Conservative

My Lords, might an increase in tax on inheritances be considered to help pay for the reform of social care, for which I understand the Treasury is searching for the necessary funding?

Photo of Baroness Penn Baroness Penn Baroness in Waiting (HM Household) (Whip)

My Lords, as I have set out, the Government’s approach to inheritance tax at the most recent Budget was to freeze those thresholds, which will raise additional funding. The Government’s plans for social care will be set out later this year.

Photo of Lord Palmer of Childs Hill Lord Palmer of Childs Hill Deputy Chairman of Committees, Deputy Speaker (Lords)

My Lords, I feel the Minister’s reply and arithmetic are rather optimistic. The Office for Budget Responsibility repeatedly reported that the public finances were unsustainable, even before the pandemic resulted in a 24% increase in public sector net debt in the past two years. How do the Government intend to put the public finances on to a long-term sustainable path? What will that mean for taxes and public spending in the short, medium and long term? The Minister’s reply and the arithmetic used are not believed by the Office for Budget Responsibility.

Photo of Baroness Penn Baroness Penn Baroness in Waiting (HM Household) (Whip)

My Lords, I am glad to hear the noble Lord’s support for fiscal responsibility and repairing the public finances. As I set out, a number of measures were taken at the Budget to do this. These included freezing the income tax personal allowance until April 2026; increasing the rate of corporation tax to 25% from April 2023; freezing the pensions lifetime allowance and annual exempt allowance; and measures to tackle tax avoidance, evasion and non-compliance, which will raise an additional £2.2 billion by 2025-26.

Photo of Baroness Bennett of Manor Castle Baroness Bennett of Manor Castle Green

My Lords, given that a large proportion of most inheritances arises from property values, do not the current tax arrangements contribute to inequality not only between individuals, as the noble Baroness, Lady Bryan, said, but between regions? Given the Government’s levelling-up agenda, could they not use a wealth tax or inheritance taxes to increase that levelling up?

Photo of Baroness Penn Baroness Penn Baroness in Waiting (HM Household) (Whip)

My Lords, we seek to balance the contribution inheritance taxes make to the Exchequer in paying for our public finances with the quite legitimate desire of people to pass on assets to the next generation. We believe we have got that balance right.

Photo of Lord Moylan Lord Moylan Conservative

My Lords, does the Minister agree that there is a callow view, even in some parts of Her Majesty’s Treasury, that there is pile of wealth out there and all we have to do is tax it and all our problems, such as Covid and social care, will be solved? Wiser heads know that most such efforts result in perverse outcomes and hard political cases—capital flight and little old ladies losing their homes— such that, in the end, more harm is done to the economy and the Government’s reputation than the pathetic yield justifies.

Photo of Baroness Penn Baroness Penn Baroness in Waiting (HM Household) (Whip)

My Lords, my noble friend is perhaps referring to the balance in priorities that we need to address when looking at tax rates. We raise a relatively high amount from inheritance tax and assets compared to peer countries, and we believe that we have got that balance right.

Photo of Baroness Greengross Baroness Greengross Crossbench

My Lords, when the merits of specific tax changes to help pay for the costs associated with the pandemic are being assessed, I am really anxious that pensioners do not disproportionately bear the cost of the crisis. Are the Government looking at the pension triple lock in relation to older people who are working? Are they, strictly speaking, pensioners or are they really older workers to be treated differently?

Photo of Baroness Penn Baroness Penn Baroness in Waiting (HM Household) (Whip)

My Lords, the pension triple lock remains government policy and the state pension remains the foundation of the Government’s support for older people. I am not aware of any work looking at treating pensioners who choose to work after the state pension age any differently.

Photo of Lord Sikka Lord Sikka Labour

My Lords, the problem with inheritance tax is that the rich continue to avoid it through the creation of a variety of trusts. Will the Minister explain why the Government have failed to close the loopholes associated with avoidance of inheritance tax?

Photo of Baroness Penn Baroness Penn Baroness in Waiting (HM Household) (Whip)

My Lords, it is important to distinguish between the legitimate use of reliefs and those engaging in avoidance by bending the rules to gain a tax advantage that Parliament never intended. The Government have taken action in this area. Since April 2011, inheritance tax and trusts have been brought into the disclosure of tax avoidance schemes regime. This is to ensure that any new or innovative inheritance tax avoidance schemes involving transfers into trusts must be disclosed to HMRC.

Photo of Baroness Gardner of Parkes Baroness Gardner of Parkes Conservative

My Lords, I confess to finding this question insensitive at this time, as it seems to be seeking to penalise for ever those who died from Covid and their families. Will the Minister instead consider the Australian system whereby people are taxed during their lifetime but there are no death duties?

Photo of Baroness Penn Baroness Penn Baroness in Waiting (HM Household) (Whip)

Perhaps I can reassure my noble friend, in that some 94% of estates are forecast to have no inheritance tax liability whatsoever over the next five years. However, inheritance tax does still make an important contribution to funding public services, raising more than £5 billion each year.

Photo of Lord Bhatia Lord Bhatia Non-affiliated

Might increasing VAT be the answer?

Photo of Baroness Penn Baroness Penn Baroness in Waiting (HM Household) (Whip)

I am afraid that I could not quite hear the noble Lord’s question, but I would be happy to write to him when I have clarified what he said.