The Daily Telegraph - Saturday - Money
Countries booming after abolishing death duties
Ditching tax is shown to spread wealth and attract investors, writes Charlotte Gifford
Rumours are swirling that Rishi Sunak is planning to scrap inheritance tax ahead of the general election. If the Prime Minster does, then Britain will join 10 countries in the OECD that have waved goodbye to death duties.
Today only four countries in the group – including Britain – tax the total wealth of its citizens upon death.
Twenty other countries have some form of inheritance tax or gift tax – but levied on the value of the assets the beneficiary receives.
Since the 1960s, nations such as Sweden, Norway and Australia have abandoned the charge while America has virtually killed it off by pushing the exemption so high – to $11m – that only 0.08pc of the population pay it.
Inheritance tax is sometimes referred to as Britain’s most hated tax. The Daily Telegraph, along with some 50 MPs, is calling on the Government to abolish it.
Originally designed for the wealthiest, the tax now affects more middle-class families because house prices have climbed while tax-free allowances have been frozen since 2009.
Others argue that abolishing it will unlock economic benefits by encouraging business investment and freeing up resources for the tax office.
HOW DEATH DUTIES
DIED IN AUSTRALIA Inheritance tax is charged at 40pc in Britain on estates worth more than £325,000. Homeowners get an additional £175,000 allowance when leaving their property to their children.
Both of these tax-free allowances are frozen until 2028, despite soaring inflation, which has resulted in more families getting dragged into the net and led to growing calls for the government to scrap the tax.
A similar story played out in Australia over 40 years ago. More than one in 10 families were paying the tax by the time Malcolm Fraser, the then prime minister, abolished federal estate taxes in 1979. By 1982, every state had followed suit.
Sylvia Villios, who teaches taxation law at Adelaide University, said: “As the tax had not been adjusted since the 1940s, individuals with relatively modest levels of wealth became subject to estate duties, with inflation exacerbating the problem of low exemptions.”
Australians transferred about A$1.5trillion (£780bn) in wealth to their beneficiaries between 2002 and 2018, according to a report by the think tank the Productivity Commission – all of it free of inheritance tax.
The think tank found – perhaps surprisingly – that these wealth transfers did not have a significant impact on inequality within the country.
Catherine de Fontenay, a productivity commissioner, said: “Wealthier people receive more inheritances and gifts on a dollar-for- dollar basis but less as a percentage of their existing wealth. When measured against the amount of wealth they already own, those with less wealth get a much bigger boost from inheritances on average, about 50 times larger for the poorest 20pc than the wealthiest 20pc.
“Hence wealth transfers tend to reduce the share of wealth held by the richest Australians and our projections show this is likely to continue. This might be a surprise to some, but it’s been found in every other country that’s been studied.”
One of the main arguments made in favour of abolishing inheritance tax is that it will encourage the wealthy to stay and invest in the country.
In Sweden, abolishing inheritance tax saw fewer businesses moving overseas because of the tax burden.
Australia is forecast to attract 5,200 high-net-worth individuals this year, according to the consultancy Henley & Partners – more than any other country. By comparison, the UK is expected to lose 3,200. Andrew Amoils, of Henley & Partners, said: “Capital gains tax and estate duty are the two main taxes highnet- worth individuals look at when migrating.”
HOW SINGAPORE THRIVED AFTER BANNING INHERITANCE TAX Singapore is sometimes referred to as the “Switzerland of Asia”. Over the years it has become known as a safe haven for the assets of the wealthy.
The abolition of inheritance tax in 2008 played a key role in helping Singapore build this reputation. At the time the tax was levied at rates of 5pc and 10pc, which hit those with non-residential assets worth S$600,000 (£360,000) or more and S$9m for property.
Before it was axed, estate duty collected about S$75m for Singapore every year. But Lim Hwee Hua, Singapore’s senior minister of state for finance at the time, said the loss of tax receipts would soon be offset by the long-term economic benefits.
Since then, Singapore has enjoyed a huge influx of entrepreneurs and investors. The number of so- called family offices – organisations that manage assets on behalf of affluent families – rose from 700 to 1,100 between 2021 and 2022. Its wealth management industry has exploded. Singapore now has S$5.4trn in assets under management, up 16pc year- on-year – 78pc of which came from foreign investors.
Eugene Lim, of law firm Taxise Asia, said: “The abolition of estate duty – together with a slew of other fiscal and non-fi scal measures – has sent a clear signal that Singapore wants to be an attractive place for ultra- high- networth individuals, high-net-worth individuals and families, and entrepreneurs to lay down their roots.”
‘Wealth transfers tend to reduce the share of wealth held by the richest Australians’