If you ask a politician about reforming inheritance tax, they generally wince, and may then leave abruptly. They know the conventional wisdom says that, unless the policy is to scrap inheritance tax, don’t touch it.
“Fair enough”, you might say, “the public hate it” – and you wouldn’t be blamed for thinking so. After all, ‘survey after survey shows that IHT is the most hated tax of all’.
But even “survey after survey” is not perfectly reflective of reality – and definitely not of a national debate. Survey responses reflect a certain feeling in a unique context. To understand what they really mean – and their implications for public policy – we have to dig deeper. In doing so, we often uncover a much more complex picture.
This is exactly what Demos’s recent research on inheritance taxation shows. Take this example. When we asked respondents a general question about whether inheritance should be tax-free, 55% said it should always be completely tax-free. But in the very next question, we showed respondents specific amounts of inheritance, and asked how much people should be able to pass on tax-free (with any amount higher being taxed). Strikingly, now just 21% said all inheritances should be tax-free, while three quarters said some amounts should be taxed. Similar proportions said inheritance of secondary homes should be taxed, while around two thirds said inheritance of financial assets should be.
Even more surprisingly, people typically said only around £300,000 should be tax-free. This is close to the current minimum threshold (£325,000), but much lower than the threshold at which a majority of estates start paying tax (£1 million). It suggests UK adults, once faced with specific amounts, typically want lower thresholds than those currently in place.
So, clearly, moving from the general to the specific often turns people’s responses on their head – they become more supportive of the tax. The politician previously wincing at inheritance tax reform may now have switched to a curious expression. “Why does this happen?”, they ask.
Good question. To answer, let’s dig even deeper.
When breaking the responses down by socioeconomic status, it reveals an intriguing story. People with less wealth are more affected by the move from the general to the specific framing, i.e. while people with less wealth are just as likely – if not slightly more likely – to oppose inheritance taxation in a general sense, when asked about specifics, they support much lower tax-free allowances than others.
Cue another questioning look. To explain, here is the mechanism I find most convincing: when asked about whether they support inheritance taxation (which currently affects less than 4% of estates), many people think about it in terms of whether they, or people they know, should be charged inheritance tax – and across the board they feel they shouldn’t. People respond in this way because they don’t have another basis to think about it; unlike income tax for example, people rarely engage with inheritance tax, and so have little understanding of its thresholds, rates, contribution to state funds or redistributive impact. It’s therefore hard to consider the full context around the tax. As the only UK tax on private wealth transfers, people also see inheritance tax as unusual, and associate it more with death than anything else – compounding the negative response.
Move forward to the next question, and we ask about taxing specific amounts of inheritance – bringing all respondents to consider the same amounts. Take, for example, when we ask about inheritance of £300,000. People with high wealth may be more likely, when asked about inheritance in a general sense, to think about an amount in this ballpark. When now faced with that figure specifically, they maintain their aversion to the tax. Simple enough. But for those with less wealth, £300,000 may be vastly more than the amount they were thinking about before. Faced with this specific inheritance, they may see the inheritance as something external to them, something excessive. Many therefore switch their position to support the tax.
We can see this idea reflected in other surveys on inheritance tax. Most surveys ask very general questions like How fair is inheritance tax?, Do you believe in the concept of inheritance tax?, and Should inheritance tax be abolished?. All are prone to that individualised thinking – all find widespread opposition to inheritance taxation. But a 2020 YouGov survey asked people, if they had the funding to do so, which taxes should the Chancellor cut (choosing up to three). This forces people to consider inheritance on a national level and the tax-and-spending trade-offs involved; like our survey, it prevents people from just thinking about their own inheritance. As such, just 14% chose inheritance tax to be cut, compared to 29% saying income tax and 36% for council tax. And yet inheritance tax is meant to be ‘the most hated tax of all’.
It is clear, then, that we can talk about inheritance tax reform as long as it’s spoken about in the right way. National policy debates can play out in many unpredictable ways, and surveys are only an indication. But if the coming inheritance tax debate pushes people beyond their individualised associations, driving them to focus on the amounts of inheritance involved or the tax-and-spending trade-offs, it seems more likely that people will support the tax than previously assumed.
Hopefully, the once-puzzled politician now feels a sense of clarity, and perhaps optimism. Inheritance taxation is not quite the untouchable policy area they might have thought. But we know politicians are cautious – and rightly so. They need to know precisely how they should talk about inheritance policy to garner that support. Lucky them – our next paper on inheritance, out in September, will outline exactly that.