Inheritance tax dodging is the Cayman Islands of Britain. So why does no-one care?

Revelations abound in the Panama Papers, about millionaires, despots, popstars and world leaders who have been secretly squirreling away their wealth on tropical islands far out of reach of the taxman. These revelations have already toppled the Prime Minister of Iceland, but after a turbulent week it seems like David Cameron has survived the battering he received after the revelations that he benefited from a shady offshore trust set up by his father. Squeaky-clean politicians have been falling over themselves to publish their tax returns, while Cameron and his fellow Tories have largely squirmed, before succumbing.

It turns out that Cameron’s tax return did indeed show tax avoidance on an industrial scale, to the tune of £80,000 in lost revenue to the treasury. There it was, in plain English: two gifts of £100,000 from his mother. Number 10 didn’t try and hide it, although they did avoid using the words ‘tax avoidance’ when questioned. Their statement was thus: Cameron’s mother and father had “some years earlier” transferred the family home to Cameron’s oldest sibling, Alexander Cameron, and £200,000 was deemed to be Cameron’s rightful share. But you don’t need to be a dodgy lawyer from Mossack Fonseca to work this one out: this was an inheritance tax dodge, plain and simple.

Cameron defended his actions, saying under no uncertain terms, that for parents, passing wealth down to their children is “a natural instinct and something that should be encouraged”. But instead of outrage, the public and media reaction to this revelation was of startling indifference. £80,000 lost to the treasury is three times the average UK salary, yet eyebrows were barely raised. For the time being, Cameron’s tax issues seem to have been buried.

The truth is that inheritance tax is widely despised. Just 22% of people think inheritance tax is fair, compared to 59% who consider it unfair. That’s why when it turns out a politician profited from the sale of £30,000 of shares hidden in a tax haven, there is widespread outrage, but more than double that sum transferred from a mother to a son’s bank account provokes remarkable indifference. Inheritance tax is hated, and most people affected see little problem in avoiding it. It’s become commonplace to sign the deed of your house over to your children as you enter retirement to ensure you don’t pop your clogs during the seven-year grace period and find the treasury comes knocking. Inheritance tax avoidance is so socially acceptable that tabloid newspapers are quite literally running headlines that read “REVEALED: How the rich avoid paying inheritance tax and you can TOO”.

We live in a progressive society that has agreed that some redistribution of wealth from the rich to the poorest is what enables us all to prosper, not just the wealthiest few. Yet, as is clear, attaching this value to death is something that the British public find deeply unpalatable. So what’s the solution for policymakers who are uncomfortable with the idea of inherited wealth?

There are two problems that need tackling here. First is the issue of popularity. Is there any point in having a tax that is so unpopular it has just become widely socially acceptable to dodge it? And secondly, what is the point of a tax that is so easy to dodge in the first place? Taxes that are easy to dodge create a sense of deep unfairness; only those who are honest enough to avoid dodging them out of principle are the ones hit with the bills. In the case of inheritance tax there is an added element of unfairness, in that the more suddenly and unexpectedly you die, the harder it is to avoid. Drop dead from a heart attack at fifty and your estate will be heavily taxed. Die predictably at eighty and you’ll have had a good chance to ‘do a Cameron’ and transfer all your valuable assets before this moment comes.

There are some steps that could be taken. Perhaps a tax on transferring property deeds could undo some of the ease of pawning off your house to your kids before an untimely demise. Is it possible that a series of asset transfer taxes that aren’t specifically connected to death might sever the apparently unpalatable connection between death and the taxman? There are no easy solutions, and if the majority get their way, inheritance tax will simply get the axe. The Conservative government have already virtually achieved this, slashing the threshold at which you have to pay to £1m, pulling everyone but the extremely wealthy out of the tax. The fact of the matter is, until a government has the political motivation to make inheritance taxes a more palatable proposition, simply giving away your assets to your kids in Britain will prove a far more popular decision than doing so from the Cayman Islands. But what is the difference really?

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