Why Rishi Sunak can learn from Sweden and Norway on inheritance tax

There is little that can be said for sure other than death and taxes—and an almost universal dislike of death taxes.

< p>Inheritance tax is one of the most hated taxes in Britain, according to polls, half of the population considers it unfair. The only thing they don't like anymore is the fuel surcharge and the BBC license fee.

So it's easy to see why Rishi Sunak is said to be considering cutting the death penalty before the next election.

Cuts to the unpopular tax could give a much-needed boost to the Conservatives, who are 14 points behind Labour, and were hit hard in last week's local elections.

This is one of the most affordable tax cuts offered to the prime minister. Contempt notwithstanding, inheritance tax is relatively minor for the Treasury. This levy only affects about 4% of deaths and generates only 0.7% of the government's total tax revenue.

The small gain raises the question: can inheritance tax be abolished at all?

Ten OECD countries have already taken this step, and two countries — Estonia and Latvia — have never taxed inheritance at all.

Even Sweden and Norway, known for their high taxes and wealth redistribution policies, are riddled with a death tax .

Lessons can be learned from their experience for the UK.

Sweden became the first country to abolish the hated tax in 2004 under a social democratic government.

“All parties, including communists and conservatives, have voted to abolish the inheritance tax,” Anders Idstedt, partner at Scantech. Strategy consultants in Malmö, they say.

He campaigned against the tax before it was abolished while he was with the Swedish Enterprise Confederation.

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According to Idstedt, unlike in the UK, small businesses were not exempt from inheritance tax, which created huge problems. The country was left with a very complex system whereby people had to sell part of their business in anticipation of death, and small companies had to borrow money to pay taxes after the death of the owner.

This is — and according to him, an unpopular wealth tax. which was also subsequently abolished, forced many large companies to leave Sweden.

Faced with a clearly flawed system, Idstedt says it was deemed fairer to abolish the inheritance tax entirely than to make exceptions. .

As in the UK, “government revenues were very small compared to total tax revenue,” he adds. system and fewer taxes. Swedish businesses go abroad because of government burdens.

Today there is «almost no discussion» about his return, he says.

Ten years after Sweden abolished the tax, her neighbor decided to follow suit. Norway's conservative government abolished the unpopular tax in 2014.

“It was really badly targeted,” says Per-Ole Hegdahl, head of tax at Danske Bank in Norway.

Norway was very low threshold of just NOK 470,000 (£35,000) for inheritance tax. By comparison, the UK threshold has been £325,000 since 2009.

Despite this, Norwegian taxes also bring in very little money: less than NOK 3bn (£220m) a year.

< p>Hegdal says: «The inheritance tax was supposed to promote redistribution, but studies have shown that it did not significantly affect the rich.»

«One of the arguments in favor of eliminating the inheritance tax in 2014 was also is that we got rid of a complex set of rules, while freeing up resources for the tax authorities.”

Instead, Norway has moved to a «continuity principle» where assets are taxed when the heir sells what they have inherited, rather than when they inherit it.

However, almost a decade after it was abolished, some in Norway are now pushing for a reinstatement of inheritance tax. A government-appointed committee has recommended reintroducing the levy to bring Norway in line with peers and help cover the growing costs of an aging population.

One of the reasons Oslo is looking for new ways to raise cash is because Norway's huge oil revenues are at risk due to the transition to net income zero.

Hegdahl says: «Future pension spending in coupled with declining oil revenues will create serious budgetary problems. The state needs more revenue to replenish the budget [add].

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Although Sweden abolished its wealth tax many years ago, Norway still imposes personal fees on people if they have a net worth of more than NOK 1.7 million (£130,000).

This caused an exodus some of the country's wealthiest people, and several billionaires have moved to Switzerland.

Hegdahl believes that the return of the inheritance tax could allow the government to cut wealth taxes to stop or even reverse the exodus of billionaires.

It would be better if the government simply spent less money, he says.

In the UK, inheritance tax is expected to hit more and more people in the coming years as fixed thresholds and inflation drag the band more people.

Inheritance tax brings in only about £7bn a year, according to the Office of Accountability, but will rise to £8.4bn by 2028.

This tax will soon face more grieving families than ever since. The 1970s under Harold Wilson and James Callgan, according to the Institute for Financial Studies (IFS).

«There's a fundamental question of whether we should have an inheritance tax at all,» says Stuart Adam of the Institute financial research.

“If we have it, I think it could work a heck of a lot better than the current one.”

As in Sweden, in the UK, the complexity of the system is a major problem .

«It's full of loopholes,» meaning that two people who inherit the same level of wealth can end up paying vastly different amounts. Adam says.

“The richest seem to pay less interest and are usually easier to avoid than the just well off,” says Adam.

“The result of all is because that you have an unpopular tax with a fairly high rate that attracts more people but still doesn't generate much revenue.»

The system is also outdated. For example, although land for agriculture is exempt from the tax, this does not apply if the land is used for conservation activities such as wind farms.

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Business owners must also own more than half of the business in order to get benefits that inadvertently hurt joint ventures.

KPMG's Joe Bateson says, «It looks like tax breaks aren't quite keeping up with the way modern companies merge.» .”

"It doesn't make a lot of money, and it's probably quite expensive to collect it.”

In Sweden, no one regrets abandoning the tax almost two decades ago .

«It's a positive story,» says Idstedt.

Getting rid of inheritance tax would be a cheap vote winner for Rishi Sunak and with the Scandinavian left voted for him, the Prime Minister the minister could realistically sell the policy to both the left and the right.

The Treasury Department said the pre-election tax cut was not yet discussed.