Inheritance tax is the only way to stop rich kids getting richer ...Middle East

Inheritance tax (IHT) is an issue that is politically and emotionally contentious. According to polling from YouGov, over half of Brits support scrapping it, claiming that it is money that has already taxed and that IHT punishes those who have saved for their loved ones.

IHT is charged at 40 per cent on property, possessions and money over a threshold of £325,000 and it currently raises £7bn for the Government. Proponents of the tax say that it promotes equality and redistributes wealth, while opponents argue that it is an unfair taxation, harms businesses and is easily avoided.

So, should inheritance be taxed? Millionaire businessman Charlie Mullins, The i Paper‘s housing correspondent Vicky Spratt and IHT payer Susan Gray offer their perspectives.

To tax or not to tax, when it comes to inheritance that is the question? Taxes are rarely popular, but this one is particularly disliked. Polling shows that the majority – 61 per cent – of Brits think that inheritance tax is unfair.

There are myriad reasons for this, according to research carried out just over a year ago by the pollsters at YouGov. But chief among them is the idea that it’s a “double tax” – that is to say that the person who has died already paid income tax, so it’s unfair that their relatives must pay tax again on the money.

Having recently had to engage with some of these questions since the sudden death of my Dad last year, I can understand the sentiment. When you are grieving, the last thing you want to think about is HMRC.

square SUSAN GRAY

My mum was on pension credit but I paid £44,000 in inheritance tax – it’s so unfair

For that reason, inheritance tax will always be an emotive subject. And then, in the long, baggy days after someone dies, their things – their home, car, savings – start to feel like all you have left of them. Seeing it all divided up into tiny boxes on a spreadsheet as their “estate” can never be anything but jarring.

And yet, professionally, as a journalist who has spent the best part of the last 20 years looking at the inequality caused by inheritance, the Bank of Mum and Dad and generational wealth, I find it increasingly hard to reckon with arguments in favour of cutting or scrapping inheritance tax.

Today, Britain is no longer the meritocracy that either Margaret Thatcher or Tony Blair pledged to create. That is, a country where people can work hard and get ahead in life. It’s an inheritocracy where young adults’ fortunes are largely dictated by how much money their families have and not their income.

According to the independent think tank, the Resolution Foundation, young people whose parents have property wealth are three times more likely to be homeowners by the age of 30 than those whose parents can’t gift them cash for a deposit.

The evidence doesn’t stop there. According to the Institute for Fiscal Studies (IFS), another independent think tank, wealthy parents have wealthy children. This has already completely skewed the housing market.

Young adults who have inherited money or been gifted money by their families have been able to meet house prices that are unaffordable for those without family wealth, propping up a housing market which has become totally unhinged from what most people actually earn.

square CHARLIE MULLINS

I’d rather burn my cash than pay inheritance tax

And then, there are lesser studied ways that having rich parents can help you build a better life: not having as much student debt, getting financial help to do unpaid internships early on in your career, and being able to live with your parents because they have spare bedrooms while you work and save money.

The final point speaks to another way that scrapping inheritance tax would further entrench inequality amongst younger adults: geography.

As the IFS have noted, if inheritance tax were to be abolished, it is the wealthiest families, many of whom are located in London and the south east, who would benefit: almost half of the gains would go to the top one per cent of our population.

Another problem here is that not all of the generational wealth currently held by young people’s parents and grandparents was earned from work. For this reason, when you look more closely at what’s going on, the argument that inheritance tax is a “double tax” starts to fall apart.

Over the last decade, the amount of net housing wealth held by owner-occupier homeowners aged 65 and over has risen by more than £1.111trn, according to the estate agency Savills. This is because through the 2010s and early 2020s, house prices exploded and rose far, far above wages to hit all-time historic highs across the country.

This is unearned wealth on a scale never seen before, and it is almost completely untaxed. When members of the Baby Boomer and pre-war generations – my generation’s parents and grandparents – die, there will now be an enormous wealth transfer. Some young adults will do very well out of it, but those people whose parents were never able to buy a home or who lived in a part of the country where housing is worth less than it is in so-called “property hotspots”, will benefit far less.

Any questions about the future of inheritance tax need to seriously grapple with this fact and ask whether it would be fair to allow that to happen. We tax people on the money they earn through their hard work, so why wouldn’t we tax them on unearned windfalls which have come about as the result of a unique period of historic house price inflation?

Never before in history has there been so much generational wealth because of housing spread so widely. Taxing it is in the public interest.

Based on the deepening inequality I’ve seen across the country, taxing housing wealth seems not only a sensible way to boost public spending but, potentially, also rebalance Britain’s housing market. Vicky Spratt is The i Paper’s housing correspondent

Perspectives

square Opinion Should inheritance be taxed? Charlie Mullins

I’d rather burn my cash than pay inheritance tax

Susan Gray

My mum was on pension credit but I paid £44,000 in inheritance tax – it’s so unfair

Vicky Spratt