Transfering property between generations free of charge
1. Inheritance tax should be assessed on an estate in two component parts: (a) The value of dwelling houses (b) Everything else, including bank deposits, bonds, shares, pension rights, annuities, trusts, jewellery, works of art, and all other possessions and valuables.
2. Inheritance tax should be zero rated on (a) if the dwelling house or houses is passed on free of charge to any relative or friend who does not presently own a house and has never previously owned a house before. This measure enables parents and benefactors to pass on their dwelling houses free of charge to the majority of the next generation. It also prevents a potential abuse: the deliberate disposal of a property prior to the likely inheritance of another property.
3. The inherited property can be sold on by the person who has inherited it free of inheritance tax, without penalty, but the proceeds can only be used to purchase another house. An official Notary would by law hold the sale money in a Government account, at National Savings rate of interest, and release it only to purchase another dwelling for the nominee inheritor. This measure prevents abuse of the zero rate of inheritance tax. This measure also enables social mobility, i.e. the inherited property not being in the right location where the inheritor lives and works.
4. All the non-property part of an estate (b) will be subject to inheritance tax at a much higher rate than the present 40% rate and there would be no concessionary threshold. I would suggest a 75% rate, maybe 80%. Government actuaries would need to calculate the rate so that this measure is fiscally neutral, in overall effect, for the Government Treasury. This measure would encourage parents to fulfil their natural duty: to provide their children with the one basic necessity for life… a house. They could gift their children a property at any time in their life at a zero rate of gift tax or subsequent clawed-back inheritance tax, with the proviso that any additional property later forming part of an estate would be subject to full inheritance tax.
5. A limit of say £1 million could be imposed on the total value of property to be transferred free of inheritance tax. If there are two or more children involved in property inheritance the limit may be extended reasonably so that both (or more) can each inherit a house.
6. In the case where both individuals who are a couple inherit a zero rated property via this inheritance tax concession, they could only inherit one property (probably the higher value property), any other property would have to be sold, the proceeds going into a State controlled social fund to help property purchase schemes for those unfortunate young people who inherit nothing from their parents etc. This measure is supportive of social equality.
Why does this idea matter?
The houses are there, they have been built and generally paid for, many by previous generations and some by the present older generation…. so why do we make each young generation pay for them all over again? Why as a nation do we require young people to mortgage their lives up to the hilt merely to buy a house from someone who has departed this life and doesn't need it or want it any more? It seems crazy that we make every generation pay for the housing stock over and over again?
As a nation we need to devise a system whereby the vast majority of each generation receives a house entirely free of charge from the expiring departing generation. Think how the economy would benefit if the money that presently unnecessarily goes into mortgage payments were released into the wider economy. This measure alone could take a country out of recession. This measure would make the UK one of the richest nations in the world with a higher disposable income per capita than almost anywhere else. All at zero overall cost to the Government.
It is Government blind interference, by the imposition of excessive and greedy non-selective inheritance taxation, in the natural right of citizens to pass their property on to their children, that causes so much financial difficulty and unnecessary suffering to the new emerging generation of this country. Intelligent thinking could change all that suffering within a few decades by the implementation of a progressive change in inheritance tax law..
Housing has generally become unaffordable to the majority of young people. With student loan debts at £30,000, few can afford the deposit for a house. Those that do are subsequently crippled for life with debt. We are in danger of creating a generation who will never be able to afford to buy their own home. This simple cost-free measure enables the vast majority of the population to inherit a property entirely free of charge, and to own their own house entirely mortgage-free, and then in turn pass it on to the next generation, again entirely free of charge, thus in perpetuity. It must be an idea worth considering?
Housing cost is the greatest burden laid upon any new future emerging generation. A society that imposes gargantuan costs in aquiring a dwelling house upon new generations is not a sane nor a benevolent society. Something must change. The idea of houses being passed on from one generation to the next entirely free of charge is the very idea that can liberate a society. It is a revolutionary idea, but also a simple and achievable idea. Only a simple change in inheritance taxation is necessary.
If implemented this idea could make our nation famous throughout the world for its intelligent benevolence towards the housing needs of new generations. Britain would astonish the world as the truly Big Society in which one generation passes its houses free of charge on to the next.
A similar idea could be applied to the inheritance of a business. If the business is passed onto a child, a relative or friend who does not presently own a business and has never owned a business before, then a zero rate of inheritance tax, or a zero rate of gift tax, can be applied. If not the case then the full rate of inheritance tax, at 75-80% can be levied, with the proceeds going to support a fund for new entrepreneurs etc.
Although the idea of inheritance tax change will be of most interest to Conservative supporters, I sense the complimentary ideas for social equality will naturally be of interest to Liberal-Democrats. I personally feel both sides of these proposals are necessary, both compliment each other, both work well with each other, to attempt to create a more perfect society in Britain.