The OECD report suggest that Inheritance tax can be an important part of addressing persistent high wealth inequality. This is based on the fact that from the reported taxes the members of the top 20 wealthiest households is 50 times higher than the bottom 20% of households.
The report states that Inheritance tax “can reduce wealth concentration and enhance equality of opportunity”. Inheritance tax is easier to collect than other forms of wealth tax.
24 member states reported that they levied Inheritance or Estate taxes, but they collect very little tax revenue. The average of the 24 members only collect around 0.5% of the tax income from Inheritance or Estate taxes.
Looking at individual countries South Korea was the highest with 1.6% whilst the UK was the 6th highest with 0.7%. The only countries higher were Finland, Japan, France, Belgium and South Korea. Whilst Germany and the USA were around 0.5%.
The main reasons given for the low tax revenues are the exemption countries provided. As an illustration in the UK business property relief provides up to 100% Inheritance tax relief on certain business assets.
The data did not allow the OECD to go into greater detail but 8 members did provide significant data which allowed the OECD to go further. They was then able to calculate the percentage of estates that paid Inheritance or Estate tax. The USA was very low with only 0.2% of their estates paying Inheritance tax, the UK was 3.9% but part of Belgium, 48% of estates paid inheritance tax.
Based on the need for its members to increase tax revenue the OECD felt that Inheritance and Estate taxes, taken with the low amount of estates paying taxes, would be an area that additional tax revenues can be collected but it is not the only answer to solve their members tax revenues. The OECD feel the public at large need to be provided with more information on the equalities and the use of Inheritance tax to reduce these.
The UK undertook a review of Inheritance a few years ago and matters have not really progressed. But with the OECD report backing up the low tax revenues it seems more likely Inheritance tax will increase in the UK. Therefore, planning ahead to mitigate the tax is becoming more important.
The next steps
Should you like to find out more please contact Clive Gawthorpe on c.gawthorpe@uhy-uk.com or visit our corporate tax service page.
