OECD calls for rise in Inheritance Tax

The Organisation for Economic Cooperation and Development (OECD) has called for Inheritance Tax (IHT) to rise in the wake of the coronavirus pandemic.

A report from the OECD suggested that wealth inequality could rise over the next decade unless the tax is not only increased but enforced.

The report, titled Inheritance Taxation in OECD Countries, has provided a comparative assessment of inheritance, estate and gift taxes across the 37-member OECD, and explores the potential role these taxes could play in raising revenues, addressing inequalities and improving the efficiency of tax systems in the future.

The OECD revealed that IHT has declined in most countries as a proportion of overall tax revenues, and now accounts for just 0.5% of tax revenues on average across the member countries. Generous tax exemptions and other forms of relief are a key factor limiting revenue from these taxes.

The report has also highlighted the high degree of wealth concentration in OECD countries as well as the unequal distribution of wealth transfers, which it suggested “further reinforces inequality”.

In the UK, the top 20% of wealthy households hold 57% of all wealth, compared with the OECD average of 39%. On average, the inheritances and gifts reported by the wealthiest 20% of households are also close to 50 times higher than those reported by the poorest 20% of households.

“While a majority of OECD countries levy inheritance and estate taxes, they play a more limited role than they could in raising revenue and addressing inequalities, because of the way they have been designed,” commented director of the OECD Centre for Tax Policy and Administration, Pascal Saint-Amans.

“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.”

The OECD’s report has proposed a range of reform options to enhance the revenue potential, efficiency and fairness of inheritance, estate and gift taxes. It noted that reforms will depend on country-specific circumstances, and highlighted a 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,” Saint-Amans added. “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 will be undertaking new work in that area, in particular as the progress made on international tax transparency and the exchange of information is giving countries a unique opportunity to revisit personal capital taxation.”

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