The Problem: Everybody tries to avoid paying inheritance tax.
The Solution: Change the perception of the tax into people’s one chance to be a major philanthropist.
There is an old saying that the only people who pay inheritance tax (IHT) are those who loathe their families more than the taxman.
I therefore propose changing the perception of the tax, by making it into a specific act of philanthropy, and simultaneously lowering the tax rate and eradicating any exclusions so that everyone pays.
Under this proposal, IHT would be set between 25-33% on all assets inherited above a tax-free allowance of £100,000, with no exclusions. The tax would have to be paid in full, plus interest, within ten years of the inheritance, to give people the chance to pay it off without selling assets. This is designed to be high enough to generate revenue, but low enough not to seem like daylight robbery.
The major difference, however, is in how the money would be spent – people would be able to pick specific government-financed projects to support rather than the money just going into the national pot.
National and local governments would therefore create a list of projects they wanted to support, but did not have sufficient funding for. Either the deceased could choose projects in their will to fund with their IHT, or the beneficiaries would be able to choose projects themselves.
To prevent the money flowing into already wealthy areas restrictions would be placed on qualifying criteria, focusing on projects in the most deprived parts of the country and within public services (for example, paying for a new rehabilitation centre for injured soldiers).
This proposal would help change the perception of IHT from a hated tax to avoid into the one and only chance most people will ever have to perform a major act of philanthropy.
For example, someone earning £35,000 per year may donate a few hundred pounds to charity but is unlikely ever to be able to donate £100,000 to a particular project – that sort of philanthropy has historically been the preserve of the super-wealthy, but would be available to anyone who inherited around £500,000 (which many people will, given the price of housing has risen to high).
By making IHT tax into specific donations to projects, more and more people would have the opportunity to be philanthropists at least once in their lifetime and be able to see in clear and tangible terms the impact of their gift, for example buying a new MRI machine in a hospital.
People could either fund a single (or multiple) project(s) themselves, or contribute into a bigger pot to fund a specific project, receiving updates on the progress and impact to showcase how their donation is changing lives.
Crucially, all projects would be run by the government – no IHT would go to charities, although people could still choose to donate to charity if they wished – so the tax would be purely about fixing domestic problems such as homelessness, child poverty, and the health service.
We might even see a stage where IHT becomes a badge of honour, as people no longer moan about the tax but instead celebrate the project they financed.
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