Should inheritance tax be abolished?

Prime minister David Cameron recently promised to raise the inheritance tax (IHT) threshold to £1m in the next parliament. The debate has been given fresh impetus by a report from the Institute of Fiscal Studies’ (IFS) think tank, which described IHT as “ineffective and unpopular”.

As the report notes, the coalition government has frozen the IHT allowance until 2017-2018. If this remains in place, nearly 10% of households will be liable for IHT by 2018, from 2.6% in 2009.

The report’s authors, Stuart Adam and Carl Emmerson, also note that scrapping IHT would be no more costly than raising the allowance to £1m.

“Of course we should abolish inheritance tax,” says Tim Worstall on the Adam Smith Institute blog. While “the tax hits the estates of those who have worked, saved and been successful”, the exemptions available mean it “doesn’t hit the estates of those dynastically rich”.

Instead, it takes from the bourgeois, leaves “the Duke alone, and still does nothing for those” born poor. Even a high-tax nation like Sweden has abolished IHT.

However, Adam and Emerson argue that as well as scrapping IHT, there is “a case for moving in a different direction”.

They point out that as “individuals do not control whether or not they are born to wealthy parents”, it “might be seen as unfair that some are able to inherit much more than others”.

So, they suggest “taxing what each recipient gets, rather than what each donor passes on” so that individuals would effectively pay income tax on their inherited wealth (something also suggested by our editor-in-chief Merryn Somerset Webb).

In any case, as Richard Dyson notes in The Daily Telegraph, “the Tories have a history of promising IHT breaks which subsequently fail to materialise”. As far back as November 1996, then-chancellor Ken Clarke claimed the government wanted to abolish the tax.

  • GreenGray

    Both my partner and I have worked hard and done well in our respective careers. One started full time working as an apprentice at 16, the other as a graduate aged 21. Neither have taken any benefits from the state. Why should we not be able to leave our (fully taxed) savings to our offspring without a further level of tax. Our income has already been taxed at source, as has all interest / dividends / profits since. We could have spent much of our time claiming benefits as some people we know have had to do. Our input to the state via taxes over the past 30 or 40 years far exceeds any potential inheritance tax. Why should we pay twice?

    • Bow Street

      Both myself and my wife agree with you 100%.I am from an ex coal mining town but moved from it over 30 years ago. Most people sit on their backsides in pubs drinking alcohol every day. Our taxes go to subsidise that and so does our inheritance tax. Also if we need care in later life the state will strip all our assets to pay for it except for a tiny amount. I think that we (the hardworking) who dilligently pay their taxes all their life then have to pay inheritance tax are being let down by the main political parties.This tax demonstrates that hard work and dilligence throughout your life does not pay.Why try hard when inertia and idleness pays better.

  • Average Joe

    Property inequality is becoming one of the greatest social and moral evils of our time and, unless immediate action is taken to address this, I believe it will lead to huge and dangerous civil unrest. Most people do not pay inheritance tax, so for the majority it is not a priority issue. A tax on second homes would be a better method of redressing the balance and ensuring homes are not regarded incorrectly as ‘investments.’

  • Angela

    Soon the average house will be worth more than the IHT limit, and we will not even be able to leave the family home to our children. We can’t even give them the house without attracting massive stamp duty.
    The next generation will be significantly poorer than the Boomer generation. They are being robbed of every asset, and forced into massive debt from the very beginning of their lives. They can’t afford the homes and lifestyle, and retirement their parents enjoyed, and they will not even be allowed to inherit it. It’s despicable. The impoverishment of a generation.