Sunday, January 11, 2009

Observer-nomics

Quick quiz. Which newspaper today reported that:

"Offering some good news to homeowners among the gloom, revenues will also be hit by a sharp decline in inheritance tax receipts as tens of thousands of families escape the "death duty" trap as their homes plummet in value, taking their assets below the threshold at which the 40% tax becomes payable."

No, not the Sunday Express, but the Observer.

The sums aren't very difficult here:

This year, inheritance tax is payable at 40% on sums over £312,000. Let's suppose that last year the home being inherited was worth £412,000, and it is now worth £300,000.

Last year, the family would have inherited £372,000 (312,000 tax free + 60% of 100,000). This year they will inherit £300,000. For a net loss to them of £72,000, plus a further £40,000 loss in tax revenues which will hit the public services that they receive. (Good news for people trying to buy a house, possibly, but that's not what the financial whizz-kids at the Observer are claiming).

Even the most crackpot anti-government activist would struggle to make the case that it is 'good news' for a family to lose £72,000 in order to deprive the government of £40,000. Yet this is an assumption judged self-evident in an article written by the Observer's, um, Economics editor and Whitehall editor.

Coming up next week in Observer-nomics - good news for families as thousands more escape the "income tax" trap by losing their jobs. Or is it only inheritance tax which inspires this drivel?

3 Comments:

At 9:51 am , Blogger Andreas Paterson said...

The Observer article might have a point here, the benefits largely depend on what the inheritors intend doing with the house if they want to keep it then the house's value is not really relevant to them.

If you had the choice of:
House
or
House and £40,000 tax bill

I know which I'd prefer.

 
At 1:25 pm , Blogger Tom Freeman said...

And it's not really all that "good news to homeowners" when the homeowners in question have to die in order to see the (non-existent) benefit...

 
At 3:32 pm , Anonymous tim f said...

Yes, I don't see that many sons and daughters urging their parents to hurry up and die before the government brings us out of recession.

 

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