The government is giving some of the wealthiest families in the country billions in inheritance tax breaks every year, according to data uncovered by Tax Justice UK. Closing down tax loopholes – which the wealthiest people and companies use to reduce the amount of tax they owe – could raise significant funds.
It would give the government billions to invest in the struggling services we all rely on like the NHS, schools and public infrastructure. Meanwhile, the chancellor would be able to keep the Labour Party’s promise to keep taxes on ordinary working people flat.
Inheritance tax: just for the rich?
The research shows that in 2022 just 275 families benefited from £2bn in tax breaks for agricultural and business assets handed on to the next generation. They each received at least £2.5m in tax relief. The cost of these tax breaks could pay for the annual salaries for more than 50,000 nurses. The data is based on responses to Freedom of Information requests to HMRC.
Robert Palmer, executive director at Tax Justice UK said:
Under the guise of protecting small family farms and businesses, the country’s wealthiest families are able to use inheritance tax breaks to pass their fortunes onto the next generation. There is no justification for this, particularly when people are struggling to afford the basics and key services like the NHS are and councils are crying out for funding. The tax system needs urgent reform to ensure the super-rich and wealthiest companies pay their fare share and the economy gets the investment it needs.
The value of Inheritance tax breaks has surged since Tax Justice UK exposed the problem in 2019 in the report In Stark Relief. Back then the total cost of agricultural and business property reliefs was £2.6bn. This has now swollen to a total cost of £4.4bn in 2021/22. The total revenue from inheritance tax was £6bn in 2021/22, and is due to rise to almost £10bn in 2029.
Key figures include:
- Between 2017 and 2022 a total of £18.4bn was given away in tax breaks for agricultural and business assets handed on to the next generation, averaging £3.7bn a year.
- £9.3bn or 51% of the £18.4bn total was given away to families receiving at least £2.5m in tax relief.
- In the 2021/2022 financial year – the last with data available – just 275 families benefited from a collective £2bn tax break.
This is part of a larger problem that means that the wealthiest families can largely avoid paying inheritance tax. The bad design of inheritance tax, including that the richest families usually pay very little, exacerbates public dislike of inheritance tax as the think tank Demos has shown.
Reform is needed
To fix this, Tax Justice UK – alongside leading think tanks – argue that the government should place limits on the value of agricultural and business relief that can be claimed, as already happens in most other countries.
According to the Institute for Fiscal Studies, limiting both agricultural and property reliefs to £500,000 per estate would raise £1.4 billion in 2024-25, rising to £1.8 billion in 2029–30. The government should also end the practice that shares listed on the alternative AIM market can be passed on free of inheritance tax.
Kristina Johansson, member of Patriotic Millionaires UK said:
It is unjust and wrong that the tax system disproportionately benefits the wealthiest people in the UK, particularly when passing on great fortunes to the next generation. Instead of neglecting the unfair tax breaks the very richest families currently benefit from, the chancellor should ensure that wealthy people pay what is fair and right. Billions could be raised every year from a small number of very rich people, like me, to invest in a fairer economy: one where everyone benefits from a better NHS and well funded public services. Failing to do so allows so much wealth to be unfairly concentrated and left unproductive while the country falls apart.
Tax Justice UK has set out ten further tax reforms that could raise £60bn a year. We will have to wait and see if the Labour Party government listens.
Featured image via the Canary
