There’s something off-key about our approach to inheritance tax

a post by Mattew Whittaker for the Resolution Foundation

It takes something to be crowned Britain’s most hated tax – a bit like being the UK’s worst ever Eurovision entry – but that is the unwanted title held by inheritance tax. It doesn’t help that it’s a tax that’s unavoidably associated with the death of loved ones. And complexity is undoubtedly a problem too. But by far the biggest issue is the sense of inherent unfairness – there’s something fundamentally off-key about inheritance tax.

Just one-in-five of us think the current approach is “fair” – somewhat lower than for any other tax. It’s viewed as a double taxation of those who have earned the wealth and who have now had the temerity to die and pass their assets onto grieving families. With a flat rate of 40 per cent (above the nil-rate band), it’s also considered high – much higher than the 20 per cent income tax rate most people are familiar with. But it’s also regarded as a tax that is ‘voluntary’ for the super-rich and well-advised, with a range of reliefs and gifting rules that make it too easy – for some – to avoid.

That’s why any proposals for reform are treated with suspicion. It’s also why the review launched this week by the Office of Tax Simplification is important but tough. It will undoubtedly uncover useful insights and offer sensible options for improvement, but our view is that we need to move beyond tinkering. As our new report for the Intergenerational Commission argues, a much better approach would be to overhaul inheritance tax entirely. Done right, there’s the potential to raise significantly more money while simultaneously making it more popular.

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