OECD calls for higher inheritance tax after Covid pandemic
Inheritance tax should become a larger slice of government tax revenue after the pandemic, according to a report by the Organisation for Economic Cooperation and Development (OECD) that warns wealth inequality will rise over the next decade unless death duties also increase.
A more robust tax on inheritances that prevents the use of avoidance measures by the super-wealthy would also support efforts by governments to pay down debts incurred over the past year to cope with the Covid-19 virus, said the Paris-based thinktank, which advises 36 mainly richer countries, including the UK.
In a report that argued the moment was ripe for governments to deploy arguments of fairness and the need for higher tax revenues, the OECD said decades of rising asset prices meant there were more wealthy people than in previous generations and as individuals they had become wealthier than in the past.
Financial assets, including pensions and property, have soared in value in recent years across the developed world.
Baby boomers, who in the UK are 57 years of age and older, have accumulated a disproportionate amount of assets compared with previous generations, leading to greater inequality.
Inheritance tax has declined in most countries as a proportion of overall tax revenues and now accounts for only 0.5% of tax revenues on average across the 36 countries.
“Inheritance taxation has the potential to play a particularly important role in the current context. Wealth inequality is high and has increased in some countries over recent decades,” the OECD said.
“Inheritances are also unequally distributed across households, and they are likely to grow in value (if trends in asset prices continue) and in number (with the baby-boom generation getting older). The Covid-19 crisis will place countries under greater pressure to raise additional revenues and address inequalities, which have been exacerbated since the start of the pandemic.”
Using studies by academics, including the French economist Thomas Piketty, the report found that after a fall in wealth inequality through most of the 20th century there had been a marked rise in the past two decades, especially in the UK, the US and Germany.
In the UK, the top 20% of wealthy households hold 57% of all wealth compared with the OECD average of 39%. In the US the top 20% of wealthy households hold 67% of all wealth.
“There is evidence that the share of inheritances in private wealth is returning to the highs seen at the turn of the 20th century in some countries. If these trends continue, inherited wealth may once again reach the high levels of the early 1900s,” the report said.
“There is significant cross-country variation in the wealth shares held by the top 1%, ranging from 9% in Greece to 43% in the US.”
It added that a recent study by the UK government’s Office for Tax Simplification showed that tax relief for business and agricultural assets “predominantly benefit the wealthiest households, significantly reducing the effective tax burden on some of the largest estates”.
Pascal Saint-Amans, the director of the OECD’s centre for tax policy, said it was concerning that a rentier class who lived on inherited financial and property wealth was expanding across the developed world.
“Income and wealth inequalities are mutually reinforcing and that creates a vicious circle. It means that the richer you are the more wealth you have.”