A bit like IHT-if your estate is say 1.2million and you are the sole survivor in the marriage for example-and you leave it to your children: you have a tax free allowance of 1 million. You pay 40% on the remainder-so, in this case a tax bill of 80,000-that's hardly preventing your children from getting a 'leg up'. I'd say its a very good deal-the real cost is on the super wealthy-and thats why they want you to be angry about proposed rises in IHT-because it affects them for a change.
That's the status quo today, which I am broadly in support of. Let's see what happens to it in October.
I might make, somewhat unrelated, another observation. Sorry this goes on a bit...
Governments always overestimate the amount of money any particular tax change will rake in. Why, because they don't take into account the behavioral changes people make in response to it.
Look at e.g. the Winder Fuel allowance. Labour say they can remove it and save £1.5bn (or is it £2bn, I forget). But then people realise that they can still get it if they claim pension credit, which they have never bothered claiming for previously. The bill for unclaimed pension credit is WAY more than £1.5bn. If only a fraction of pensioners start claiming it, then no money is saved.
Another example: Reducing tax relief on pension contributions to basic rate - another thing they are considering. At the moment your earn £100 and pay £100 into your pension and no tax is payable on that £100. Doesn't matter how much you earn (apart from very high earners who get no tax relief to speak of) that same rule applies. So if you pay 20% tax, you get to claim £20 back. If you are a 40% tax payer and you paid 40% tax, you get to claim £40 of the hundred back etc. Seems fair enough. We want people to save for their retirement so everyone gets to save into a pension without paying tax on their contributions.
So Labour are first of all lying by saying this is "unfair" that the better off get more back than the less well off. Plainly it is not unfair at all, it is merely a system whereby your pension contributions up to £60k per year are untaxed. The "rich" get their £45 back and the "poor" get their £20 back because that's how much was taken from their pay in the first place.
Now, Labour are considering reducing the tax relief to a flat 25% or 30%. They imagine this will bring in a couple of billion in tax savings from the better off, since the government will only have to give a proportion of the 40% or 45% tax back. What they are
not considering is that people will just think fuck it, what's the point of putting money into my pension - which will be taxed at 25% when I take it out at retirement - if I am only going to get 25% tax relief putting the money in in the first place. So they will stop paying into their pensions and it will generate zero tax savings. Worse, Labour will have to give back to the lower paid group MORE money than they took off them in the first place. It's an idiotic idea.
Finally, and too much to type in detail, but tax receipts went down when the top rate of income tax was raised to 50% and went back up again when they were reduced back to 45%.
