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Calls to increase inheritance tax – what does it mean?

by | Aug 26, 2021 | Personal tax

Calls to increase inheritance tax – what does it mean?

Nestled in Paris, a graceful château sits joined to an ultra-modern glass-fronted building. On a greenfield site off a narrow Parisian street, this ivory tower is home to the OECD, an elite club of 37 nations. Every now and again, it ordains on policy areas that take its interest and might pique yours too.

Back in May, the OECD turned its focus onto inheritance tax. And as a result, the British papers, with one eye on the economy and the other on politics, picked up the story for a day.

What is the background?

The UK Government has spent the past decade reducing its annual deficit – the gap between what it spends and the money it receives in taxes. Until the pandemic hit the UK, this was on a downward path.

But then Covid-19 hit the nation. As soon as the Prime Minister told people to stay at home and we went into the first lockdown, the coffers opened and have stayed that way ever since. When infections rocketed and firms closed their doors, the Government spent money to support both the NHS and jobs.

The British economy went onto life support. That meant that last year, the Government borrowed more than any year since 1945. And at some point, the Chancellor, Rishi Sunak, wants to put the public finances onto “a more sustainable footing”.

What has the OECD asked for?

The OECD argues that it’s members should increase inheritance tax to help pay the Covid-19 bills. Of its 37 members, 24 levy a tax on inheritance or estates today. On average, only 0.5% of all tax income comes from this source.

With the rise in asset prices – such as houses – it comments that higher taxes are now more affordable. 

It believes that there should be greater use of this tax and says that otherwise, inheritances can lead to greater inequality in society. It wants a levy on the value of assets that people receive over their lifetime; low-value value inheritances would be exempt. 

Where does the UK stand in all of this? 

The UK gets more of its tax from inheritance than the average – just over 0.7%. Only five other OECD countries raise more than us. 

There are some surprises in the stats – most European countries raise a lower amount and only Finland, France and Belgium in Europe rake more in. Japan and Korea are the other two nations that raise more than the UK from this tax.

What’s the context? 

As always with studies issued from fine buildings focused on policy, the context isn’t always in the detail. 

Those whose interest in the news has been longer than the pandemic may remember that this tax has played a big role in UK politics before now. Any follower of the news will also spot the angst in the tabloids whenever ideas surface to raise any tax or cut any benefit such as the state pension.

Back in 2007, George Osborne used his Tory conference speech to suggest changes to inheritance tax. This move was widely credited with causing the Labour Prime Minister, Gordon Brown, to change his mind on calling an early election.

Above all though, the UK will have to pay for its Covid-19 spree. How though is not yet clear. And with papers saying that Rishi Sunak might delay the budget, it looks as if he isn’t yet clear either. 

Whatever happens, it’s likely that the Government will seek to raise money from many sources, not just one. After all, even the OECD has said that “inheritance taxation is not a silver bullet”.

How can we help?

If you are impacted by any inheritance tax issues you can contact the expert accountants at Foxley Kingham for a free consultation call, where you can discuss your requirements and options in confidence.