Observer repeating right-wing spin on inheritance tax

Andrew Rawnsley has an excellent article in today’s Observer on the changing politics of inheritance tax. In the era of deficits and looming austerity, the Conservative pledge looks less canny than when it was first announced in 2007, as if the one group that the Conservatives can find some tax relief for in these difficult times are the very rich.

The Observer’s Political Editor, Toby Helm, also reports that, in view of the changed circumstances, the government is considering ...

freezing the threshold, rather than increasing it as planned.

This would seem to me to be the least the government could do as part of a program for spreading the burden of paying for valuable public services in what are indeed difficult times.

But consider how Helm chooses to describe the issue:

‘Homeowners hoping to be freed from crippling levels of inheritance tax could be hit by new austerity measures…’

‘…he [Alistair Darling] is considering freezing the threshold at which the tax becomes payable….This means that, if property prices rose, more -not fewer – householders will be liable to pay the 40% tax.’

As a matter of maths, nobody, but nobody, will actually pay 40% of what they inherit in tax because no tax is paid on the amount below the threshold. So referring to it as ‘the 40% tax’ is misleading. It risks fuelling the misperception that, once the threshold is breached, you pay 40% on the whole estate.

For example, if someone inherits £400,000, then they would pay 40% on £75,000 – a tax liability of £30,000 on £400,000. So, in this case, the ‘40% tax’ would actually be a 7.5% (3/40) tax.

Bearing this in mind, let us now consider the article’s opening reference to ‘crippling levels of inheritance tax.’

Consider those (single people) who would otherwise not pay tax if the threshold were raised to £350,000. They will pay tax because their estate, while less than or equal to the proposed new threshold of £350,000, is above the existing threshold of £325,000. So the maximum amount they will pay tax on is £25,000. They will pay 40% of that: a maximum of £10,000. So they will pay £10,000 on an inheritance of, say, £350,000, a tax of less than 3% of the total they inherit.

It is a rather peculiar use of the English language to describe a tax of 3% as ‘crippling’.

The sort of language Helm uses, while a million miles from the reality of the tax, is what I would expect to see in the right-wing press. They have a tax-cutting political agenda, after all, and an interest in fuelling the kind of misperceptions and misunderstandings that phrases like ‘the 40% tax’ and ‘crippling taxation’ promote.

But Helm is not obliged, as a writer for The Observer, to promote this political agenda.

So why is he using this unreal and misleading language?

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