The UK government is facing renewed calls to abolish inheritance tax amid warnings the levy risks turning Britain into a “high-tax outlier” that could deter investment and push entrepreneurs overseas.
A new report by the Institute of Economic Affairs (IEA) finds that nearly half of the 38 countries in the Organisation for Economic Co-operation and Development do not tax bequests passed to adult children, leaving the UK among a relatively small group of nations imposing comparatively high taxes on family succession.
In Britain, inheritance tax is charged at 40% on the value of an estate above £325,000, although the threshold can rise to £500,000 when a main residence is left to children.
The IEA report argues the levy acts as a “distortionary” drag on the economy, describing it as an additional burden on wealth that has already been taxed through income tax, national insurance and VAT.
Lord Frost, director general of the IEA, said: “A nation serious about growth and about giving families the freedom to build something lasting, would not levy a 40% charge on wealth that has already been taxed. Nearly half of OECD countries do not tax what parents leave their children at all. Inheritance tax raises relatively little, costs a great deal to administer, and distorts the decisions of exactly the kind of wealth creators and entrepreneurs we are desperate to attract and retain.
“A government looking to boost growth, support families and simplify the tax system for fairness and economic competitiveness should consider abolishing inheritance tax.”