Benjamin Franklin famously said, “In this world nothing can be said to be certain, except death and taxes.” Unfortunately, in the UK they arrive simultaneously in the form of what is called “Inheritance Tax,” but is in fact a Death Tax.
There is a moral case and an economic case for abolishing the Death Tax (IHT). Both are valid.
The moral case is that people have already paid tax on their income and capital gains during their lifetime. To tax those assets again is double taxation, akin to taxing people who buy spirits VAT on the excise duty they have paid.
One of the strongest human motives is the love for our children and the desire to improve their lot in life. We want the freedom to pass on to them the saving we’ve accrued in our own lives so that theirs might be better, and we want to do so without the state seizing a large part of that wealth before it reaches them.
Abolishing the Death Tax will incentivize investment and economic growth. When individuals know that their assets will be subject to significant taxation upon their death, they are less inclined to accumulate wealth or invest in long-term ventures. Removing this tax burden could thus encourage entrepreneurship, risk-taking, and investment, leading to economic expansion and job creation.
The UK tax system, including the Death Tax, can be complex and burdensome to navigate. It is estimated that IHT accounts for 10 percent of the tax code, while generating only 0.2 percent of revenues. Abolishing it would simplify the system and reduce administrative costs for individuals and families. The time and resources currently spent on estate planning and tax avoidance strategies could be redirected to more productive activities, benefiting the economy as a whole.
Abolishing the tax will help reduce tax avoidance and evasion. Wealthy individuals often employ complex legal structures or transfer assets to offshore entities to mitigate their exposure to IHT. Its abolition would reduce the incentive to engage in these practices, leading to a more transparent and fairer tax system overall.
The Death Tax puts a significant burden on family businesses and assets, potentially leading to their liquidation or breakup to meet tax obligations. Abolishing the tax could help preserve intergenerational businesses and assets, allowing families to continue their legacies without the fear of hefty tax bills.
It is likely that abolishing the tax could incentivize charitable giving. When individuals are not burdened by the prospect of a significant tax liability on their estates, they may be more ready to donate to charitable causes.
Given all of this, it is not surprising that IHT is reckoned to be the least popular tax levied in the UK. The Adam Smith Institute has been publishing papers against it for decades, and it now senses a rising tide of hostility to it. The time is long overdue for the Death Tax to be quietly put down and given a decent burial.