Inheritance tax ‘genuinely unfair’ as wealthiest escape it

Inheritance tax needs “urgently” reforming, one of Britain’s leading economists has said, after The Telegraph launched a campaign to scrap the duty.

Paul Johnson, the director of the respected Institute for Fiscal Studies think tank, said the current system is “genuinely unfair”.

He warned it was “absurdly easy” for millionaires to avoid paying while “moderately wealthy” families often got stung for the full 40 per cent.

Senior Tories have joined calls for Rishi Sunak, the Prime Minister, to abolish inheritance tax in his Autumn Statement later this year.

Mr Johnson said he was not in favour of completely scrapping the duty but that ministers “urgently need to reform it”.

“It is genuinely unfair. The very wealthy pay an average rate half, or less, than that paid by the moderately wealthy,” he said.

“If all you leave is the family house, it’s hard to avoid. If you have millions, it is absurdly easy to avoid.”

Polls have consistently shown that inheritance tax is one of the most unpopular forms of taxation with the public.

A tracker survey of voter opinions carried out by YouGov points to strong opposition that has held firm over the past four years.

Half said they felt it was either very unfair or unfair in April 2023, the same figure registered in July 2019 when the polling began.

In contrast, the number of people who believe inheritance tax is very fair or fair has fallen from 22 per cent four years ago to 19 per cent now.

Separate research carried out by More in Common at the end of 2021 found that the tax was particularly unpopular among Red Wall voters.

Luke Tryl, its director, said that it was “a deeply unpopular tax and the one people are second most likely to say is too high, only behind council tax”.

He added that voters “who swung to the Tories in 2019 in places like the Red Wall” were the most opposed, even though most are unlikely to pay the duty.

Britain has one of the highest rates of inheritance tax in the world, with the duty being charged at 40 per cent on estates worth more than £500,000.

Families receive £325,000 worth of tax relief on their loved ones’ possessions, plus a further £175,000 for the handover of a property.

Married couples can pool their allowances, meaning a surviving partner is often able to leave up to £1 million tax-free to their children.

However, there are several exemptions that mostly benefit the very wealthy, who often end up paying a rate of around 20 per cent.

Reform would probably involve removing such allowances while also bringing down the overall rate to a much lower level.

Ministers could also raise the threshold at which the duty is triggered to lift property-owning middle-class families out of paying.

Simon Clarke, a former levelling up secretary, said: