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.