Unfair loopholes and exemptions allow the super rich to hugely reduce their inheritance tax bills. In some cases, allowing vast fortunes to be passed on untouched.
The super rich pay less inheritance tax by passing on assets through family trusts or by using various exemptions built into inheritance tax. For example, there’s no inheritance tax paid on shares listed on the AIM alternative stock market. These loopholes are not available to the average family liable for inheritance tax, whose wealth generally sits in a family home. Our research shows that it’s overwhelmingly the richest families who benefit from inheritance tax exemptions. A quarter of the headline rate Those with estates of £10 million pay just 10 per cent inheritance tax. This is just one quarter of the headline rate. A particularly stark example was that in 2016 no inheritance tax was paid on the bulk of the Duke of Westminster’s £8bn estate. Examples like this create resentment among people without great fortunes – when faced with getting in order the estates of deceased loved ones. Why should the super rich get away with not paying their fair share by using loopholes and exemptions? Pressure growing for reform This week the IFS, a major economics think tank, came out in favour of scrapping many of these unfair inheritance tax loopholes. We strongly support their call. The IFS has urged the government to abolish three major loopholes exploited by the super rich. “Inheritance tax is littered with special reliefs and exemptions which make the tax unfair,” they said. Their proposals would raise £3 billion a year – and would create a fairer inheritance tax system, where we all pay our fair share. “What should be the most progressive tax around, turns out to be regressive, at least among those estates that pay it”, Paul Johnson, the head of the IFS, argued. Feeling lucky Our friends at the Fairness Foundation published fascinating new research this week, which gives a really interesting new perspective on inheritances. It posed the question to the public: are our lives determined more by the hard work we put in, or by luck? It isn’t an abstract question. It informs how we think about our lives, the economy and tax: do we live in a meritocratic society, or are our lives determined by who our parents are – and what they leave us in inheritance? The research found most people believe success and wealth are a result of merit rather than luck. This belief in hard work and merit is fascinating because it is increasingly contradicted by many of the facts on the ground. Is the UK meritocratic? Research shows inherited wealth is becoming a much more important factor in determining prosperity than work or merit. And other research shows every billionaire in the world under thirty has inherited their wealth. We shouldn’t kid ourselves that the UK is a meritocratic society. Inherited wealth is becoming a much more powerful influence on determining peoples’ lives than work or merit. This is hugely unfair. To foster a truly meritocratic society, we need to rebalance the playing field. This is why we campaign for wealth taxes on the super rich and an end to tax loopholes. It’s also why we support a reformed inheritance tax – one that removes the loopholes used by the super rich.
Hundreds of billions of pounds of tax are lost globally every year to tax avoidance.
This is money that should be going into building hospitals and schools, into paying for doctors, and teachers; reducing poverty and improving ordinary lives around the world. Instead, this money is disappearing into the offshore accounts of the super rich. It’s hard to know the scale of money hidden offshore. We need more transparency to tackle the problem. That's why we’ve been working with the UK Anti-Corruption Coalition. Our new report highlights a shocking lack of progress from British Crown Dependencies and Overseas Territories towards greater transparency. A very British problem Many of these places, like the British Virgin Islands, the Cayman Islands, Bermuda and Jersey, act as secrecy jurisdictions and tax havens. They function as tax havens because financial flows into their jurisdictions are shrouded in secrecy, benefiting corrupt politicians, gangsters and oligarchs from across the globe. That’s where we come in. We’re demanding these places publish open registers of who owns the companies in their jurisdictions – and therefore who owns the money stashed in the companies. Registers of ownership would shine a light on the financial affairs of the super rich who operate in these sometimes tiny jurisdictions. It’s a major step toward tackling global tax avoidance. It’s the law In the case of Overseas Territories these registers are not optional, they’re required under UK law (the UK itself introduced such a register back in 2016). Let me explain. Following pressure from ourselves, anti-corruption campaigners and progressive politicians the Anti-Money Laundering Act was passed in 2018. It required the UK government to ‘order’ British Overseas Territories to introduce public registers of ownership. In 2020, the UK government said that it was preparing such orders – and set a deadline of the end of 2023 for these registers to be introduced. However, little progress has been made. So far only Gibraltar – one out of the 13 Crown Dependencies and Overseas Territories reviewed – has introduced a publicly accessible register of company ownership as agreed. This Times piece, which quotes our work, sets out the problem in more detail. This TED talk on the subject is also very helpful. Our head of advocacy and policy, Rachael, explains the situation in these excellent shareable videos as well. We must hold them to account Let’s be clear. International tax avoidance in places like the British Virgin Islands is being enabled by the British government’s failure to act. Our government’s reticence to enforce its own laws is costing countries and citizens around the world billions of pounds in lost tax revenues every year. Dame Margaret Hodge MP puts it bluntly in her excellent piece in The Times on Monday: “Britain has become the jurisdiction of choice for dirty money”. That should concern and anger us all.
Untold billions in dirty wealth are still hidden in secretive offshore havens, our new research with the UK Anti-Corruption Coalition shows.
Almost all of Britain’s Crown Dependencies and Overseas Territories (CDOTs) are still very far from delivering on a years-old promise to clamp down on financial secrecy, according to the report. Just 8% of CDOTs analysed – one territory – has made their register public. Public registers of this kind make it much easier for key democratic stakeholders like the public, civil society, and journalists to see who owns shell companies, and to “follow the money”. In short, this means the vast combined offshore wealth of gangsters, tax dodgers, corrupt politicians, warlords and oligarchs from across the globe can still be hidden from scrutiny in shell companies in at least 12 jurisdictions. The report found that Gibraltar is the only one out of 13 jurisdictions reviewed that’s created a publicly accessible register of company ownership as agreed. While most CDOTs have now pledged to make at least some progress during 2024, there is as yet no stated timeframe from Bermuda or the British Virgin Islands (BVI). Recent polling by the UK Anti-Corruption Coalition and Survation found 72% of the British public think Britain should take more responsibility to work with CDOTs to tackle money laundering and tax evasion. “Tax abuse is a scourge that robs governments of vital revenues, citizens of decent public services and small businesses of investment," Rachael Henry, Head of Advocacy and Policy at Tax Justice UK said. "British Crown Dependencies and Overseas Territories are world leading enablers of tax dodging, sitting at the heart of a web of financial secrecy which allows for criminality," Henry added. “Despite previous commitments to transparency, there hasn’t been enough progress. The UK government needs to acknowledge its presiding role in international tax abuse and work with territories like the British Virgin Islands and Bermuda to put an end to mechanisms that facilitate this behaviour.” > Read the report in full here.
£5 billion a year could be raised by investing in HMRC – giving it more power to clamp down on tax avoidance – and properly clamping down on non-doms.
This was the big announcement from shadow chancellor Rachel Reeves this week. And it’s a step in the right direction. For context, £5 billion a year is enough to employ 150,000 nurses. It’s a huge amount of money. The party also created a new panel of experts to advise on cracking down on tax avoidance. The move shows Labour are becoming more ambitious when it comes to tackling tax abuse – and we welcome their ambition. Our head of advocacy and policy, Rachael, was on TalkTV making the case that they should go even further. Rachael was also quoted in the Mail and the Mirror. The pressure is mounting on Labour. Reeves was pushed on both BBC Breakfast and the Today programme as to why Labour aren’t going further, pursuing higher taxes on the very rich to support more investment in public services. It’s almost inconceivable that these sorts of questions would be put to a politician on the BBC even a few years ago. This isn’t a coincidence. All of our media work is helping to shift the debate towards raising taxes on the very rich. We are being listened to I have said over and again in this newsletter that HMRC needs more resources to tackle tax dodging. At the moment HMRC don’t have the resources to deter sophisticated tax dodgers (or answer the phone). In this vacuum, the scale of abuse is huge. Currently at least £36 billion a year owed in tax is left unpaid. This is called the ‘tax gap’. It shows just how badly HMRC is failing and unable to enforce its own rules. HMRC is chronically underfunded. A Parliamentary committee slammed the government last year for not investing enough in the tax authority. Parliament also found that for every £1 invested in HMRC compliance, £14 was recovered in additional tax. Investing in HMRC pays for itself in multiples. It’s well evidenced – as our friends at TaxWatch have shown. We’ve been making this case to politicians. And now Labour seems to be listening to our argument. We will keep lobbying them, pushing them to implement their HMRC plans if they are elected. It is vital they go further in reforming our unfair tax system, for example by taxing the ultra-rich more, as I argued in the Guardian this week.
Forbes has released its annual ‘Billionaire List’. It shows that there are more billionaires than ever before, and they have increased their wealth to record levels.
The Forbes wealth editor stated that ‘It’s been an amazing year for the world’s richest people’. This comes at a time of massive global instability, staggering inequality and an urgent need to combat climate and environmental breakdown. According to Forbes, there are 55 billionaires in the UK. Showcasing the massive intergenerational transfer of wealth, every single billionaire under the age of 30 - of which there are 15 - inherited their riches. Just one billion is a staggering amount of money. In fact, if a teacher on the average salary saved every single penny they earned, it would take over 30,000 years to become a billionaire. Raising revenue The level of wealth on display also highlights how much revenue would be raised by introducing wealth taxes. Our work on just six taxes on wealth shows that up to £50 billion a year could be raised and go straight into public services. That’s money to pay for nurses, doctors and dentists and resuscitate Britain’s ailing health service. As Tax Justice UK Executive Director, Robert Palmer, said on Twitter, world leaders need to ensure the super-rich pay their fair share. You can share his response here. Making the right case You may be surprised to see, but taxes on wealth do have popularity across the political spectrum. In a recently published collection of essays for the centre-right think tank, Bright Blue, Conservative MP John Penrose makes just this case. While we may not agree on all points, Penrose argues that rebalancing our tax system from work to wealth would be better. He argues that Britain taxes income in a ‘thoroughly regressive way by systematically giving a better deal to the rich at the expense of the poor’. Taxing wealth at the same rate of work would be a popular proposition. The Fairness Foundation recently commissioned public opinion polling that showed two in three people (65%) support reforming capital gains tax so that income from wealth is taxed either at the same rate or at a higher rate than income from work. Bright Blue also published a report in 2022 proposing that wealth should be taxed at higher levels, offset by a reduction in taxes on work. The think tank argued that wealth should be taxed at higher levels to respond to rising accumulation of wealth, and the role of inheritances in determining life outcomes. |
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