Inheritance tax reform to tackle inequality
Inheritance taxation can be an important instrument to address inequality, particularly in the current context of persistently high wealth inequality and new pressures on public finances because of the Covid-19 pandemic, according to the Organisation for Economic Co-operation and Development (OECD).
In a report published this week, the OECD sums up the current situation in relation to inheritance, estates and gifts taxes across the 37 member states of the organisation, which includes the US, the UK, France, Germany, Australia, Canada and New Zealand.
The report highlights the high degree of wealth concentration in OECD countries and the unequal distribution of wealth transfers, which further reinforces inequality. On average, the inheritances and gifts reported by the wealthiest households in those countries (top 20 percent) are close to 50 times higher than those reported by the poorest households (bottom 20 percent).
Easy tax to collect
Inheritance taxes, particularly those that target high levels of wealth transfer, can reduce the concentration of wealth and enhance equality of opportunity. The report also notes that inheritance taxes generally have lower efficiency costs compared to other taxes on the rich and are easier to access and collect.
Some 24 of the 37 OECD countries currently have inheritance or estate taxes, but these do not raise that much money, with only 0.5 percent of total tax revenues coming from this source across those countries that have inheritance tax.
The key factor in limiting revenues from these taxes are generous tax exemptions and other forms of relief. The relief provisions are of the most benefit to the wealthiest households.
High exemption thresholds
The OECD says individuals can often pass on significant amounts of tax-free wealth to their close relatives because of the high exemption thresholds and tax relief is common for the transfer of specific assets—the main residence, pensions, life insurance policies and business and farm assets. In some countries, it is easy to avoid inheritance and estate taxes through in-life gifts.
Across eight counties, the number of estates subject to inheritance tax was lowest in the US (0.2 percent), the United Kingdom (3.9 percent) and highest in Belgium (48 percent).
Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration, said: “There are strong arguments for making greater use of inheritance taxes, but better design will be needed if these taxes are to achieve their objectives.”
Provide information on equality
To make inheritance taxation more acceptable to the public at large, the report emphasises the need to provide citizens with information on inequality and the way inheritance and estate taxes work, as these tend to be misunderstood.
“Inheritance taxation is not a silver bullet, however,” added Mr Saint-Amans. “Other reforms, particularly in relation to the taxation of personal capital income and capital gains, are key to ensuring that tax systems help reduce inequality.”
The OECD is to undertake new work in that area, in particular as the progress made on international tax transparency and the exchange of information will provide countries with a unique opportunity to revisit personal capital taxation.
Finders International can work quickly to find the relatives of deceased individuals for private clients at our own risk and expense. In most cases, there are living and entitled next of kin somewhere, even if they are distantly related and/or living abroad.
If you are a lawyer or other professional, we can also help secure instructions for your firm to administer the estate. Any costs you may have already incurred can then be recovered and further work generated.
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