Monday 16 March 2026 11:12 am  |  Updated:  Monday 16 March 2026 11:27 am

Scrap inheritance tax!

By: Kristian Niemietz

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Inheritance tax is burdensome, distortionary and barely raises any revenue. Get rid of it now says Kristian Niemietz

If you work in Westminster, you treat protest marches as part of the background noise. I have been working in SW1 since the late-stage Gordon Brown era, and I have certainly seen my fair share of those over the years.

Nonetheless, until a little over a year ago, I had never seen a farmers’ protest in my life. I thought those were a French thing, which Britain didn’t really do.  

And they really were quite unlike any other Westminster protest I had ever seen. It was not just the tractors, the Barbour jackets, and the obnoxious honking to the tune of ‘Baby Shark’. The vibe and the demographics were completely different from a ‘normal’ protest. Thus far, I had just taken it for granted that ‘a protester’ must be either a Corbynista student, or a belatedly radicalised pensioner. Most remarkably, there was not a single Socialist Workers Party placard in sight.       

But while I treated it as a curious spectacle at the time, there was also a serious issue behind it. In the think tank bubble, some of us treated it as an occasion to think a bit more deeply about the economics of inheritance taxation, which is normally a low-salience issue. Rory Meakin’s new IEA report ‘A Taxing Inheritance. The state of Britain’s inheritance tax system – is reform enough?’ is a product of that.

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Remember, the farmers’ protests were initially triggered by the government’s decision to reduce the inheritance tax exemption for agricultural assets. The government has since watered down those proposals, which is why the protests have fizzled out again. However, the protests inadvertently highlighted a number of much wider problems with inheritance tax, which long predate the Starmer/Reeves government, and which this latest Starmerite U-turn has by no means resolved. Inheritance tax is a flawed policy which violates several principles of what makes a ‘good’ tax good (or rather, a least-bad tax). If it did not already exist, we would probably not introduce it today.

I have no strong ideological objections to inheritance tax; in fact, some of my intellectual heroes, such as the great liberal thinker John Stuart Mill, and the Nobel Prize-winning economist – and IEA author – James Buchanan, were in favour of it. But if we look at the practicalities, inheritance tax is simply more trouble than it’s worth.

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The cost of compliance

For a start, it is an extraordinarily complex tax, which imposes high administrative and compliance costs. Each taxable inheritance needs to be valued, and assessed. This is easy enough if you inherit money in a bank account, or a portfolio of stocks and bonds. But if you inherit, say, a property or a business (such as a farm), and you have at best a rough idea how much it might be worth, you have to carry out a full valuation process.

Then there’s the issue of liquidity constraints. If you inherit money in a bank account, or liquid assets such as a portfolio of stocks and bonds, you can easily pay your tax bill out of that. But if you inherit an indivisible and illiquid asset, such as a property or a business (a farm is a good example, but by no means the only), you have a problem. You are now asset-rich, but you are not necessarily cash-rich.

Sure, that problem can be mitigated by simply exempting assets that are illiquid or too difficult to value: Britain’s agricultural exemption is an example of that, the partial exemption of primary residences is another one. But while that solves one problem, it causes others. People will then shift their wealth from taxed to tax-exempt assets, causing economic distortions and inefficiencies.

Some OECD countries do not even have an inheritance tax, or only a symbolic one that hardly anyone pays. These are not feudalist hellholes run by hereditary wealth dynasties: we are talking about the likes of Sweden, Norway and Austria

There is also some evidence that inheritance tax reduces people’s willingness to save and invest. The effect is not large, but it exists.

And for what? In the UK, inheritance tax raises the equivalent of 0.3 per cent of GDP. This is quite high by international standards: almost twice the OECD average. But it is clearly not a major revenue-raiser, and there is no reason to believe that it could ever become one. As far as we have data, no country has ever managed to squeeze more than one per cent of GDP out of inheritance tax.

Some OECD countries do not even have an inheritance tax, or only a symbolic one that hardly anyone pays. These are not feudalist hellholes run by hereditary wealth dynasties: we are talking about the likes of Sweden, Norway and Austria. We should follow their example, and scrap this burdensome distortionary tax altogether. 

Kristian Niemietz is editorial director and head of political economy at the IEA

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Inheritance tax haul hits another record

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