A proposed amendment to the Finance Bill could guarantee just thatby Jolyon Maugham / January 19, 2018 / Leave a comment
Over Christmas, the Telegraph ran a story concerning a bit of our inheritance tax law which taxes gifts—defined as transactions which reduce your financial worth—made by individuals.
That law—which was made by our own parliament many decades ago, before we even joined the EU—is subject to various exemptions including one for charities and another for recognised political parties. But it contains no general exemption for politically motivated spending.
The story was about an application of that law to a number of very wealthy Leave donors—and one Remain donor—giving rise to an inheritance tax bill on their donations.
Now, the issue has bubbled up again because of a proposed (and, I believe, flawed) amendment to the Finance (No. 2) Bill.
The amendment seeks to extend the inheritance tax exemption to gifts to referendum campaigns. In itself, that outcome is inherently unobjectionable. It is perfectly reasonable to argue that donations to referendum campaigns should escape inheritance tax liability.
But what is profoundly objectionable is the fact that the amendment also seeks to backdate its effect.
We have exemptions from tax for a reason. That reason is to encourage behaviour that serves a public interest and which would not otherwise occur. They are—if you like—a kind of fiscal carrot. They have to serve that purpose because they carry a cost. The effect of giving a tax exemption is to forego tax that the state would otherwise receive—this is why economists describe them as “tax expenditure.” If they don’t serve that purpose they are just a transfer of money from the state to the individual.