As the row continues over David Cameron’s inheritance, should we abolish inheritance tax in its entirety?

Inheritance tax is widely disliked by the public (Source: Getty)

Dia Chakravarty, political director at TaxPayers’ Alliance, says Yes.

Inheritance tax (IHT) is the most hated tax in the UK, even among socio-economic groups unlikely to ever be liable to pay it. It goes against the most basic human instinct – to want to pass something on to one’s children – and has been abolished in many countries including the egalitarian’s paradise, Sweden. Levied on estates that have been built up out of the proceeds of income which has already been taxed, often several times over, it hits families at the worst possible time – after a bereavement. IHT raises less than 1 per cent of government revenues but accounts for more than 10 per cent of the tax code, with exemptions for agricultural land, business assets and woodland creating distortions devoid of economic rationale. This government’s introduction of a ludicrous £175,000 additional transferrable “residential nil rate band” will only make things worse. This is an immoral tax that raises little revenue and significantly complicates the tax code. Hopefully we’re hearing the death knell of the death tax.

Alfie Stirling, a research fellow at IPPR specialising in the economy, says No.

We need to reduce inequality for reasons of fairness, but also because evidence shows inequality jeopardises long-term growth. Taxing large concentrations of wealth is good for the economy. While the principles of IHT are good, one problem is that it’s too easily avoidable for the “healthy, wealthy and well advised”. Anyone with significant wealth outside the value of their home can give away assets in instalments, thereby avoiding the tax threshold. Moreover, IHT falls on the deceased, not the recipient. Therefore a small inheritance from a large estate may be taxed more than a large share of a small estate. A better option is to replace IHT with a lifetime “gift tax”. An appropriate threshold would ensure normal gifts and financial support between family members remains unaffected. This tax would be far harder for the very rich to avoid, while reducing unfairness created by taxing the size of a will, rather than the amount in unearned wealth received.

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