Max Young has stated that abolishing Inheritance Tax (IHT) would help reduce wealth inequality by acting as an equalising measure and a source of start-up funding. This, he suggests, would disproportionately benefit lower-wealth households and middle-class families.
The Chancellor did not abolish or lower Inheritance Tax in the recent Budget. Young argues that such a policy would not only provide “growth in every postcode” but also reduce inequality in Britain.
A 2021 report by the OECD found that while lower-wealth households receive smaller inheritances, these amounts are typically large relative to their net wealth. The report noted that in 12 examined countries, the second-poorest fifth of households benefited more from their inheritance than the richest fifth.
Studies in Britain, Denmark, and Sweden support this view. An Institute for Fiscal Studies study in 2016 observed that inheritances in Britain “act to make the distribution of non-pension wealth less unequal.” In Denmark, tax record research indicated that bequests reduced the share of wealth held by the top one per cent by approximately six percentage points. Similarly, an analysis of Swedish tax records found that inheritances reduced the Gini coefficient, a measure of wealth inequality, by five to ten per cent.
HMRC data shows that in Britain, families with estates valued between £2m and £7.5m face an IHT bill of over 25 per cent, a share that decreases for wealthier estates. Ten OECD countries have previously scrapped inheritance taxes, including Sweden and Slovakia in 2004, and Norway in 2014.
Inheritances also serve as a source of start-up funding. A recent Charles Stanley survey found that 20 per cent of business owners used an inheritance to start their firm, while 15 per cent used it for later business expansion. A 2018 study of US data from 1992 to 2010 found that receiving an inheritance increased the chances of owning and running a business by almost 13 per cent.
The British government is expanding the tax, with unspent pension pots set to join estates from April 2027. The Office for Budget Responsibility forecasts that over 10 per cent of British estates will pay Inheritance Tax in three years, partly due to the allowance threshold being frozen since 2009.