Why abolishing Inheritance Tax would actually reduce wealth inequality

The abolition of Inheritance Tax could reduce wealth inequality, according to Max Young, news editor at Guido Fawkes. In a recent article, he explained that such a move would serve as an equalising measure, providing essential start-up funding for lower-wealth households and middle-class families. Inheritance tax disproportionately affects those with moderate wealth, as the poorest fifth of households derive an outsized share of their net wealth from bequests.

For instance, in Spain, 95.6% of the net wealth of the second wealth quintile comes from bequests. In Britain, inheritance tax burdens middle-class families with a bill of over 25% for estates valued between £2m and £7.5m, with the burden decreasing for wealthier estates. The evidence suggests that inheritances are a crucial equalising measure, as they disproportionately benefit lower-wealth households.

In Denmark, bequests reduced the share of wealth held by the top one percent by around six percentage points, while in Sweden, inheritances reduced the Gini coefficient by five to ten percent. Other countries have also abolished inheritance tax due to its outsized effect on middle-earning families. This includes countries like Mexico, Canada, Australia, Israel, New Zealand, Austria, the Czech Republic, and Norway.

Banks often lend against houses and significant savings, but those who lack these assets rely on inheritance for business funding. In the US, receiving an inheritance increases the likelihood of owning and running a business by almost 13%, with each extra $1m bequeathed adding only one percent to this probability. The British government is expanding the tax, with over 10% of British estates expected to pay Inheritance Tax in three years due to a frozen allowance threshold since 2009.

Abolishing Inheritance Tax would help reduce wealth inequality and provide crucial support for lower-wealth households and middle-class families.