Many years ago Roy Jenkins described IHT (or CTT as it was then) as a voluntary levy paid by those who distrust their heirs more than they distrust the Inland Revenue.
If it is voluntary, then why is so much time and effort spent on trying to minimise or even eliminate the levy (or tax) on your demise. It’s an interesting thought.
I think that the point here is that you can avoid IHT completely by giving away your entire estate to your heirs and living for 7 years. Its probably not quite that simple for everyone but for most people this works. So, why have you not done it?
This is where we come back to Roy Jenkins, a fascinating politician. Jenkins was born in 1920 in Abersychan, Monmouthshire, in South East Wales. He was the only son of a coal miner who became an MP. He was educated at the University of Oxford and served as an intelligence officer during the Second World War. He was initially elected to Parliament in 1948 and held various posts in Government.
In the role of Home Secretary, he embarked on a major reform programme seeking to build what he described as “a civilised society” overseeing measures such as the effective abolition in Britain of both capital punishment and theatre censorship, the partial decriminalisation of homosexuality, relaxing of divorce law, suspension of birching and the liberalisation of abortion law. In 1967 he replaced James Callaghan as Chancellor of the Exchequer and oversaw a tight fiscal policy in an attempt to control inflation, with a particularly tough Budget in 1968 which saw major tax rises. As a result of this, the Government’s current account entered a surplus in 1969.
There is a lot more to Roy Jenkins but I will leave you to Google that.
Anyway, getting back to IHT, clearly giving away all of your assets is not palatable for most people. Do you not trust your children to look after you and give you such funds as you might want, out of the generous gift that you gave them? Very few people would find this a comfortable position to be in. When you have assets and money you have choices, and I don’t think there can be many people who would want to give up their ability to freely make those choices. We have all been independent for too long to give that up without a fight.
So, does this mean that tax planning is predicated on a distrust of others. We want it all. We want to hang on to everything we have worked to accumulate, and we don’t want the taxman to get any of it. Do we also think we are immortal?
At the end of the day there are laws both natural and manmade that we cannot avoid. We will all pop our clogs at some point. We will all suffer taxes at some point. The point of IHT planning is to make sure that on the former, we minimise the latter.
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Alan E Long
The Long Partnership