SNP urged to consider local inheritance tax
Campaign group call for radical new measures to combat poverty as inequality accelerates across Scotland
SCOTTISH ministers should consider introducing a local inheritance tax to reduce growing inequality, according to the leader of an anti-poverty campaign group.
Alex Cobham, chief executive of the Tax Justice Network, said the policy would help cut the divide between rich and poor and raise vital revenue for public services.
Inheritance tax – which sees a 40 per cent rate on estates over £325,000 – is reserved to Westminster but under the devolved settlement the Scottish Government can create local levies, such as the workplace parking levy and proposed tourist tax.
Any new local inheritance tax could be imposed on estates exceeding a certain value in addition to the reserved tax.
The Institute for Public Policy Research (IPPR) examined the scope for the Holyrood administration to bring in new taxes including a local inheritance tax. According to its report, rates of 10% and 20% on assets worth over £36,000 would yield £100 million and £200m for council services.
Mr Cobham’s intervention follows grim warnings last week over the spiralling cost of living and soaring inflation which it said represented “the largest fall in a single financial year since [official] records began in 1956/57”.
In response to the crisis, Chancellor Rishi Sunak announced a 5p cut to fuel duty and an increase to the threshold at which people start paying National Insurance from £9,568 to £12,750.
However, there were no moves by the UK Government to increase benefits to people out of work with a report by the Resolution Foundation warning that 1.3 million people will be pushed into absolute poverty next year.
SNP ministers announced on Thursday they will raise the Scottish child payment to £25 a week by the end of the year and spend £10m annually to “mitigate the UK Government benefit cap”.
Mr Cobham is a member of the Scottish Government’s Poverty and Inequality Commission but set out his support for a local inheritance tax in his campaign group role.
‘Let poverty rip’
PUTTING the case for the SNP and Green Government to examine a local inheritance tax, he said the announcements made by the Chancellor would “simply let poverty rip”.
He said: “The Scottish Government’s announcement yesterday confirmed their commitment to using the available powers to curb child poverty and inequality. But the Chancellor’s statement the day before had already tied their hands, with the Westminster Government effectively choosing to let poverty rip.
“The failure even to maintain the value of existing benefits will ensure that the cost-of-living crisis adds sharply to the numbers of people living in poverty across the UK, including Scotland.
“And so the need has never been greater for the Scottish Government to explore additional, progressive revenueraising powers – to give it the scope to meet its commitments to reduce child poverty.”
He added that the new tax could be introduced alongside a replacement to the council tax, which the SNP and Greens have pledged to reform with higher contributions made from those living in the highest value properties. “A local inheritance tax, as proposed by the
IPPR, could generate significant additional funds for local government expenditure in support of this agenda,” he said. “Such a tax would ideally be introduced alongside a property valuebased alternative to the council tax, which is entirely unfit for purpose.
“A tax based on property value would ensure the availability of annually updated valuations, and consistent registration of the ultimate beneficial owners of property – which would in turn provide the basis for effective and fair inheritance tax.”
Property value
HE continued: “Local spending of locallyraised inheritance tax would ensure a clear connection to the additional services provided, and would reflect that increases in property value in particular are largely dependent on local government investments in the area. Allowing local government to vary the rate could support political ownership for the tax. Resulting variations are less likely to be seen as unfair (if, say, Aberdeen, had lower rates than Glasgow), if they are determined by local elections, and on the basis of clear spending commitments – thereby strengthening the local social contract.
“While a progressive schedule of rates for a local inheritance tax would typically raise more in higher-income areas, that would free up Scottish Government spending to target lower-income areas and households more effectively, ensuring an overall progressive outcome and supporting the delivery of the child poverty goal.”
A report by the Resolution Foundation in 2018 found the wealth of Scottish households has grown rapidly in recent years and exceeded £1 trillion. The study also showed that generational divides have opened up with older generations benefiting and inheritance booming.
“At age 35, those born in the second half of the 1970s had one-third less wealth than those born just five years before (£33,000 vs £52,000),” it stated.
“Inheritances are booming: what you inherit, rather than what you earn, is set
Such a tax would ideally be introduced alongside a property value-based alternative to the council tax, which is entirely unfit for purpose.
to become a much more important determinant of your lifetime living standards in the years ahead,” it added. “The biggest wealth tax is devolved: while wealth has grown in recent years, the same is not true of wealth taxation. The biggest wealth tax (council tax) is fully devolved.”
US initiative
THE IPPR report Thinking Bigger on Tax in Scotland, published in 2019, cited other parts of the world including the United States which had introduced a local inheritance tax.
While Mr Cobham’s proposal will attract support from anti-poverty groups, it will meet resistance in the property sector. Andrew Meehan, an associate director at the estate agent Rettie, said: “If a local inheritance tax was introduced in different council areas at different levels, it would have a huge effect on the market. People could sell homes in areas will higher rates to move to areas with lower rates, which could see prices surge in those areas.”
Mr Cobham has not suggested a threshold for the tax to be introduced and said this could be a matter for discussion.