SNP told to consider introducing local inheritance tax to fight poverty

Inheritance tax - which sees a 40% rate on estates over £350,000 - 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 levy would be imposed on estates exceeding a certain value in addition to the reserved tax also applying.

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His call follows a report by the IPPR think tank which examined the scope for the Edinburgh administration to bring in new taxes including a local inheritance tax.

According to the IPPR, taxes of 10 per cent and 20 per cent on assets worth over £36,000 would respectively yield £100 million and £200 million for council services.

Mr Cobham's intervention follows the UK Government's fiscal watchdog, the Office for Budget Responsibility, expects inflation to peak at about 9 per cent towards the end of 2022 — the highest rate for more than 40 years, representing “the largest fall in a single financial year since [official] records began in 1956-57”.

Chancellor Rishi Sunak defended the package of support offered to poorer households, including a 5p cut to fuel duty and increasing the threshold at which people start paying national insurance from £9,568 to £12,750.

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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.

In Scotland, Social Justice Secretary Shona Robison (pictured below) announced on Thursday they will will raise the Scottish child payment to £25 a week by the end of the year and spend £10 million 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.

Putting the case for the SNP and Green government to examine introducing 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 revenue-raising 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.

"Such a tax would ideally be introduced alongside a property value-based 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."

He continued: "Local spending of locally-raised inheritance tax would ensure that 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 that the wealth of Scottish households has grown rapidly in recent years and had exceeded £1 trillion for the first time.

It found that wealth had grown much faster than incomes making it much harder to close wealth gaps by earning and saving.

The study also showed that generational divides have opened up with older generations benefitting 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).

"Inheritances are booming: What you inherit, rather than what you earn, is set to become much more important determinant of your lifetime living standards in the years ahead," the report said.

"Wealth is very unequal: wealth in Scotland is nearly twice as unequally held as income. Twenty five per cent of Scottish people have less than £500 of net savings, and 7 per cent have zero savings or are in debt.

"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."

The IPPR report 'Thinking Bigger on Tax in Scotland', published in 2019, cited other parts of the world which had already introduced a local inheritance tax.

It found it had been introduced in many parts of the United States where in addition to the federal

US-wide estate tax, 18 states levy their own estate or inheritance tax with Washington having the highest rate - 20 per cent. The tax is levied on top of a federal rate of 40 per cent on estates worth more than $5.5 million.

While Mr Cobham's proposal is likely to attract support from anti-poverty groups, it is certain to meet resistance in the property sector.

Andrew Meehan, an associate director, at the estate agents Rettie, envisaged problems.

He 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 sale 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.