The most unpopular tax
UK inheritance tax is widely seen as the most unpopular tax for several reasons. Many people feel it is unfair because it taxes assets that have already been taxed during someone's lifetime.
It affects emotional moments, since it applies when a family member dies, making it feel more personal and stressful.
There is a perception that it targets ordinary families, especially as house prices rise and push more estates above the tax threshold. It can be confusing, with complex rules about thresholds, exemptions, and reliefs, leading to worry and misunderstanding. Some believe wealthier people can more easily avoid it through planning, making it seem inequitable.
It conflicts with the idea of passing wealth to children and supporting family stability across generations, which is culturally important to many people. These factors combine to create a strong emotional and practical dislike of the tax.
The arguments commonly made in favour of abolishing the UK's inheritance tax (IHT) include economic, moral, administrative, and political points.
IHT discourages people from saving and investing because assets will be taxed again at death. Removing it, they argue, could incentivise wealth creation and capital retention. Supporters of abolition argue that wealth being taxed again at death is unfair since assets were already taxed during life, taxes such as earnings, capital gains and stamp duty. Large illiquid assets like farms can face tax burdens, forcing sales or debt.
Inheritance is seen by some as a just reward for those who save rather than spend. And there is a generally held principle that individuals should be able to pass wealth to children without state interference. IHT raises a relatively small share of total taxation, about £7bn a year, roughly 0.7% of tax receipts. This by no means justifies the perceived unfairness and complexity.
The system has many exemptions such as gifts, trusts, business reliefs, and the residence nil-rate band that make it burdensome for HMRC and encourage expensive tax planning. Ultra-wealthy households often use legal tax planning structures to avoid most IHT, while middle-class families inheriting property in the South East are increasingly affected due to rising house prices.
Polls show that many see IHT as unfair, making abolition politically attractive. And some point out that abolishing IHT could attract wealthy individuals or investment, noting that several countries, including Australia, Canada, Norway, Sweden and Estonia, have removed inheritance taxes. The time for the UK death tax to die itself is long overdue.
Madsen Pirie