Geof Nightingale: independent tax expert weighs up benefits and drawbacks of an inheritance tax

There's speculation that Labour is examining the possible benefits of an inheritance tax ahead of its next party conference.

The party has reportedly taken inspiration from Ireland, where people are required to pay a 33 percent tax on gifts or inheritances worth more than €335,000 ($558,00 NZD).

Independent tax expert Geof Nightingale says there's good arguments for the tax - but it's not without drawbacks.

"It can get very complex to administer, because it's based on valuation. It can drive some really unwelcome economic behaviours, because you've got to find cash to pay it - therefore you might sell the family business or realise some assets."

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Episode Transcript

Speaker 1 (00:00):
Now, how do you feel about an inheritance inheritance tax?
It is understood that Labor is considering whether they advocate
for an inheritance tax or not, and they're reportedly taking
inspiration from Ireland's version. Now, what happens in Ireland is
they don't pay any tax on anything that they get
inheritance wise of up to five hundred and fifty eight
thousand New Zealand dollars. But then if it clicks over that,

(00:20):
it's thirty three percent tax on everything else. Jeff Nightingale
is an independent tax advisor who joins me.

Speaker 2 (00:25):
Now, hey, Jeff, good afternoon, Heather.

Speaker 1 (00:27):
You like the Irish version of it?

Speaker 2 (00:30):
Well, I'm not sure I like any versions of inheritance tax,
but they're pretty common amongst the OECD, and most of them,
like the Irish version, do have an exemption both for
a financial level, but also usually exempting your personal house.

Speaker 1 (00:45):
Oh so your personal house you can inherit from your
parents and then also another five hundred and fifty eight
thousand New Zealand dollars.

Speaker 2 (00:52):
Yeah, different jurisdictions have different rules, but in principle most
of them have that.

Speaker 1 (00:57):
Yet, why don't you like an inheritance tax.

Speaker 2 (01:00):
Well, I think there are some really good arguments for
it from a wealth redistribution in an equity sense. It
sort of provides a catch all at the end of
life to pick up untaxed capital gains and things, and
it's a decent source of revenue for the government. There
are a number of reasons why you might not like it.
It can get very complex to administer because it's based

(01:22):
on valuations. It can drive some really unwelcome economic behaviors
because you've got to find cash to pay it, and
therefore you might realize you might sell a family business,
or you might realize some assets that are not yet
you know, that's not the right time to do that.
And then the final thing is people tend to hate it.
Voters don't like it.

Speaker 1 (01:43):
No, I would have thought so. I mean, yeah, it
seems like it's death to the party who comes out
with the death tax. Right. Is there an argument for
us doing it because we are outliers.

Speaker 2 (01:53):
Yeah, I mean, there are some reasonable arguments for doing it.
The OECD often recommends that we consider it where outlies
in a couple of centses one, as we don't have
a capital a broad based capital gains tax, and therefore
an inheritance tax would act as a sort of a sweeper,
a cover end of life to pick up some of that.
And then the other reason is the economic reason, which

(02:16):
is to try and encourage the handing down and the
using of assets during someone's lifetime rather than accumulating big
wealth inequalities. That's why, you know, that's why the OECD
recommends it, But voters don't like them.

Speaker 1 (02:30):
No, absolutely. Do you think just on the capital gains
tax which you mentioned just before, do you think that
the attitude has changed in this country on the CGT
or is it still a nago.

Speaker 2 (02:41):
I think it's shifted a bit, but I'm biased. I
was a member of the Tax Working Group in twenty
eighteen that recommended one, but I think it has shifted it.
I think people are starting to look forward. We're going
to have a bit of a bit of a tax
revenue shortage in this country over the next twenty or
thirty years. Treasury is projecting unless we deeply slash government expenditure,

(03:02):
and I don't think, you know, the voters have not
indicated they want to deeply slash. They want to control it,
but they don't want to deeply slash it, and so
we may need some more revenue, and probably the most
sensible thing to go to would be a realization based
capital gains tax.

Speaker 1 (03:16):
Jeff, there is a text that's come through. Can I
please ask Jeff. This is Heather. Can you please ask Jeff.
Would asset's owned by a family trust likely attract the
inheritance test because that tax because there would be a
big growth coming for trusts.

Speaker 2 (03:26):
If so, yes, I mean it's all in the question
of design. But almost certainly, if you wanted the inheritance
tax to stick, you would have to apply it to
family trusts. And somehow transferred the exemptions over. New Zealand
did just to have an inheritance tax. We got rid
of it in nineteen ninety two, but it was very unpopular.
But in those days there was a lot of effort.

(03:47):
You know, tax advisors like me made good business out
of putting people into trust and trying to avoid the thing.
And that's the other kind of argument against them.

Speaker 1 (03:55):
Yeah, so from a personal point of view, actually, Jeff,
it might suit you if we bring these complicated things.
And thank you for so much for your time. I
appreciate it, Jeff. Jeff Nightingale, independent tax advisor.

Speaker 2 (04:05):
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