Prime Minister Boris Johnson unveiled a £12billion a year tax hike last week in a move that proved divisive. Some Tory MPs joined the Labour Party in opposing the plans, which will see National Insurance increased by 1.25 percent, meaning taxpayers will pay around 10 percent more on top of their previous bills. Much of the revenue initially will be devoted to cutting waiting lists in the NHS, with social care receiving only £5.3billion of the £36billion expected to be raised over the next three years.
From 2023-24, once HMRC’s computer systems have been updated, the National Insurance contributions increase will be rebadged as a health and social care levy, which will appear as a separate line on payslips.
The move has been criticised by some because it targets income, rather than wealth.
But Ed Smith, head of asset allocation research at Rathbones, said it was inevitable that taxes on the wealthy would rise relative to taxes on income.
He told FT Adviser: “It’s a matter of arithmetic: if the retired/semi-retired population is growing faster than the in-work population, it gets harder and harder to make the numbers add up if you continue to rely on income tax as your main source of revenue.
“The classic argument against inheritance taxes is that they haven’t raised much money in the past, but the amount of wealth that is about to be transferred over the coming decades is unprecedented in the post-WW2 era.
“This shouldn’t be a question of debt sustainability today – debt is sustainable so long as GDP growth rates remain higher than the cost of servicing the national debt (as a percentage of GDP).
“But it is a question about debt sustainability further down the line, given rising old-age care costs and a shrinking income tax base.”
Some are not fans of wealth taxes however, including Gordon Andrews, tax and financial planning expert at Quilter, who argued a wealth tax hike wouldn’t work.
He said that wealthy people can avoid bills by using gifts.
Mr Andrews said: “Before the Government goes ahead and raises inheritance tax rates, it may want to think about who it is that pays the most tax in the first place.
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“Analysis of inheritance tax rates paid by the Office of Tax Simplification shows the wealthy are able to pay less in inheritance tax due to being able to gift more away or have more intricate financial planning in place.”
Mr Andrews also argued that a rise in inheritance tax may also impact middle earners.
He continued: “While asset prices have risen, the tax take is still minute compared to other areas of personal finances, such as income tax.
“Inheritance tax brought in just £223million in 2019/20, so any further increases in rates are unlikely to make a huge difference to this.”
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.
A record amount of inheritance tax was raked in by the Government in 2020/2021’s tax year, and experts believe this trend will continue in the next few years.
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It is an incredibly divisive levy in the UK, and an economist told Express.co.uk last week that it should be abolished.
Julian Jessop of the free-market Institute of Economic Affairs 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.”Internet Explorer Channel Network