Australia scrapped inheritance tax in 1979 – but could Britain?

The Conservative Party yet again hinted at reforms to inheritance tax (IHT) this week, after the Housing Secretary, Robert Jenrick, said that the death duty was “unfair”.

It comes just a week after the Tory party conference, where Chancellor Sajid Javid made similar noises.

Experts have suggested any radical changes to the regime could borrow from the Australian tax system, which abolished death duties 40 years ago.

British politicians have looked to Australia for a lead in the past, most recently in the introduction of “automatic enrolment” to workplace pension schemes – the biggest pension policy change for a generation.

Some said an Australian-style capital gains tax (CGT) system would be much fairer than inheritance tax.

In Australia, assets can be passed down the generations tax free, but may incur CGT at the marginal income tax rate of the recipient if sold later, with any gain calculated from the date the asset was acquired. Under the current rules in Britain, the family home would be exempt from CGT.

Andy Butcher, of advisers Raymond James, said: “This would save the accidentally rich, who have been caught out by rising property prices, from falling into the death tax net.”

Before it was scrapped, the taxfree threshold in Australia had barely budged for 40 years, while inflation had gone up – dissolving tax protections in real terms.

Concerns were widespread, with reports that people with modest means were adversely affected.

Many were critical of loopholes in the system, causing them to describe the tax as “voluntary”. Many asset-rich but cash-poor farming families were forced to sell off agricultural land in the face of large bills from the taxman.

The picture in Britain today is uncannily similar, with the IHT regime often branded as overly complex and an unfair tax on alreadytaxed income.

The £325,000 tax-free allowance has not changed since 2009, while rising property wealth and inflation means more people are paying than at any point in the past decade, driving HMRC’s annual haul to a record £5.4bn last year. Had the tax-free amount kept pace with inflation, it would now stand at around £423,000.

Although in Britain agricultural land and some business interests can be passed on tax free (using “business property relief ”) these protections tend to disproportionately benefit the wealthy, who typically pay lower effective rates of IHT by making use of exemptions and advice not typically accessible to middle-earners.

Over the past 10 years, 80pc of the growth in the nation’s IHT bill has come from residential property, reflecting booming house prices in Middle England.

Australia has sun, sea, sand... and no death duties