This paper, newly updated since its initial publication in 1995, finds that many of the arguments made in favour of the abolition of inheritance tax (IHT) nearly thirty years ago are still relevant today- and, in some cases, are even more so.
We outline the following reasons to abolish IHT:
It places an unfair burden on those liable to pay the tax, often when their relatives are in the midst of grieving the death of a loved one. The responsibility to pay the right amount in tax falls entirely on the executor of the deceased’s will, often at great administrative expense. The pages of forms that have to be filled in have quintupled from 23 to 118 since the paper was first published;
The way the tax is structured encourages individuals to invest their money into less productive areas of the economy, rather than investing in companies and capital;
Inheritance tax yields a very small proportion of total tax revenue, raising £7.1bn in revenue in 2022-23, or 0.89% of total tax revenues collected in 2022;
Family-owned businesses, and assets in general, that are best and most efficiently looked after by long-term family owners acting to some degree in the quality of stewards. This socially desirable activity of stewardship is inhibited or prevented by death duties.
The Treasury’s current method of costing any changes to IHT assumes that the economy is static, rather than dynamic. For the reasons outlined in this paper, it should at least properly consider the impacts that any adjustments to IHT might have on levels on income, spending and saving.