In the last tax year, just 19,000 estates incurred inheritance tax. That’s barely 3% of all deaths. Freezing the £325,000 inheritance tax (IHT) threshold until 2019, as George Osborne has just announced, will increase the annual total by perhaps 5,000, meaning that IHT will still only affect around 4% of estates.
The £200m-a year-extra this is expected to provide will pay 20% of the bill for the new long-term care system, which the government says will help around 100,000 people who would have had to pay for social care.
Surely this is sensible public policy and smart politics? Unfortunately not, says James Kirkup in The Daily Telegraph. Inheritance tax is an emotive issue. Some fear – wrongly – that they will be affected. Many others disagree on principle.
They don’t think that the state should interfere with a parent’s desire to help a child; they are angry that assets bought with taxed income should be taxed again; and angry that the very rich avoid the tax through clever tax planning.
If anyone should understand this reaction, it’s George Osborne, says Isabel Oakeshott in The Sunday Times. Much of his reputation as a master political strategist was built on his announcement in 2007 that a Tory government would raise the IHT threshold to £1m. Yet the £325,000 limit has not been raised since April 2009.
Nor should we forget that just eight weeks ago Osborne promised to increase it in two years’ time. His latest decision not to raise it until at least 2019 will leave thousands £95,000 worse off.
But let’s not forget the figures that really matter, says Polly Toynbee in The Guardian. The headlines about the ‘middle-class families’ that will be hit are misleading and deliberately conflate “the interests of the very few with the interests of the genuine ‘middle’”.
Hardly anyone is rich enough to pay inheritance tax, yet every average home owner (price £250,000) is “falsely stirred up to fear inheritance tax so that they will support the rich in their never-ending fight to avoid it”.
The scheme is actually rather neat, says an editorial in the same newspaper. It means that “recipients of inherited wealth as a whole will contribute towards the new protection for estates that would otherwise be entirely eaten up by nursing home bills”.
It is, of course, right that those too poor to pay for care – either because they never inherited any money or because they have been paid low salaries all their lives – should be helped, says Melanie Phillips in the Daily Mail. But it isn’t right that those who have “frittered away their money” should have their residential care fully funded by responsible people who have worked hard and saved all their lives, and who want to help their children.
Such prudence should be encouraged, not penalised, says Phillips. Demographics dictate that the welfare gap will continue to widen and standards to fall. This must be addressed. But the government wastes billions: it is “insufferable”, for instance, to claim it cannot afford to fund residential care when the annual overseas aid budget is nearly £12bn.
“The civilised solution is surely to lower the rate of income tax and introduce universal social insurance by which people must pay into insurance schemes to cover the cost of long-term care.”