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The debate about the unfairness of inheritance tax is intensifying, and not only in the UK.
Writing in The Times this week, Paul Johnson, director of the Institute for Fiscal Studies, points out that Sweden and Norway have abolished inheritance taxes entirely and that estate taxation is increasingly under fire in the USA.
In the UK, meanwhile, an all-party parliamentary group on inheritance and inter-generational fairness has proposed that the current 40 per cent rate of inheritance tax should be replaced by a tax of just 10 per cent levied on receipts of gifts and inheritances, rising to 20 per cent on sums over £2m.
The wealthiest already have ways of steering clear of the top rates of inheritance tax. On average, Johnson points out, those leaving estates valued between £1m and £8m pay 20 per cent of what they leave in tax, while those with estates of around £10m pay 10 per cent.
And, when the Duke of Westminster died in 2016, it is reported that no inheritance tax was payable on the greater part of an estate worth more than £8 billion.
Inheritance tax in its current format also provides an administrative burden on families where no tax is eventually payable, with more than 270,000 inheritance tax forms filed, but fewer than 25,000 resulting in tax to pay.
In addition, those who have most of their wealth tied up in their home can do relatively little to avoid inheritance tax, while those with what Johnson terms “serious money” find avoidance relatively straightforward.
With such a flawed system in existence, parliamentarians believe the solution may be to impose a flat tax, at a rate of around 10 per cent, on receipt of inheritances above the current £325,000 allowance, and on lifetime gifts of over £30,000. The rate would rise to 20 per cent for inheritances over £2 million.
Johnson concludes: “We need an inheritance or gifts tax system that works far better than the current one, and which is more effective and equitable, and commands public support… The status quo with all its burdensome inequities should not be allowed to persist.”