Cutting inheritance tax is "not an electoral slam dunk", according to a new report revealing complex public attitudes

14 June 2023
  • New research from the cross-party think tank Demos found that while initially most people (55%) say that inheritances should always be completely tax-free, when asked what amount of inheritance should be tax-free, only one fifth (21%) say that all inheritance should be tax-free
  •  Three-quarters (75%) of those surveyed - the most in-depth survey to date - opted for a specific tax threshold, rather than none at all, when presented with a range of options
  • The report authors say that this shows that public opinion is more complex than simply wanting cuts to inheritance tax and scrapping it won’t provide the electoral return that some anticipate. The research also shows that people’s attitudes to inheritance tax differ according to the judgements they make about how people accumulated their wealth. People are far more likely to advocate for cutting inheritance tax where the wealth has been earned rather than accumulated through generations of inheritance or rising property prices.
  • Previous Demos research, published in January, found that the real value of inheritances transferred annually in the UK has doubled roughly every 20 years since 1979. Over £100bn is now passed on in inheritances and gifts each year.

Cutting inheritance tax is “not an electoral slam dunk”, according to a new report from the cross-party think tank Demos funded by abrdn Financial Fairness Trust. The research comes amidst rising pressure on the Prime Minister from some of his backbenchers to cut inheritance tax in a pre-election giveaway.

The report found that whilst the majority (55%) of people initially say inheritances should always be completely tax-free, when presented with specific amounts of money just 21% say all inheritance should be tax-free. Three-quarters of people (75%) support some level of tax on inheritances. The research found this was true across party lines, with 75% of Conservative voters, 78% of Labour voters and 84% of Liberal Democrats voters agreeing that tax should be paid on some amounts of inheritance.

The report, The Inheritance Tax Puzzle - Challenging assumptions about public attitudes to inheritance, is based on a nationally representative survey of over 2,000 people - the most in-depth survey to date on attitudes to specific inheritances and how people explain their views. It explored people’s attitudes to inheritances and inheritance tax, and identified a profoundly nuanced and complex picture of public attitudes to inherited wealth.

The research found that whilst the public does express initial opposition to taxing inheritances, when presented with specific inheritances - such as certain amounts of money or types of asset - the public are much more supportive of taxes.

People’s attitudes are also shaped by their own expectations of how much they will leave in inheritance. For example, those expecting to give over £200,000 in inheritance typically think that the threshold should be 10 times higher than those expecting to give between £1,000 and £5,000. Equally, homeowners typically think the threshold should be five times higher than renters.

The report found that:

- Of all respondents, the average person thinks the tax threshold should be around £300,000. 48% think it should be £250,000 or less. This is slightly lower than the current minimum tax-free threshold of £325,000 - and most estates do not actually start paying tax until they are worth significantly more e.g. when they include a primary residence given to a direct descendent (£500,000) or the maximum residence nil-rate band for spouses (£1,000,000))

- Based on the 2019 general election, Conservative voters typically support a higher tax-free allowance, with the median response being £500,000. Labour voters typically think it should be around £200,000

- People from the South of England (excluding London) typically think that the inheritance tax threshold should be £500,000. This is twice as much as for people in the North (£250,000).

- Those on lower incomes (between £17,000 and £35,000) typically think the threshold should be £250,000. Yet, those on higher incomes (£55,000-£70,000) typically think the threshold should be twice as high (£500,000)

- When presented with inheritances of different types of asset, people only think inheritances should be tax-free when they’re made up of either low value physical assets or savings acquired from wages. Just 17% think that secondary homes that have doubled in value since purchase should always be tax-free; 77% of people think that inheritance made up of this asset should sometimes be taxed.

- There is a 67% majority in favour of low value physical assets being always or generally tax-free. For savings acquired from wages, that majority is 55%, and for main residences, it’s 47%. However, in contrast, for the secondary home that has doubled in value, 41% say it generally shouldn’t or should never be tax-free, while 36% say it generally or always should be - a 5% majority. For a secondary home that has doubled in value since purchase, there is a 15% majority in favour of it never or generally not being tax-free.

Dan Goss, researcher at Demos and co-author of The Inheritance Tax Puzzle, said:

“If Rishi Sunak is serious about cutting inheritance tax, our research shows he might want to reconsider. Far from being an electoral slam dunk, cutting or abolishing inheritance tax is based on assumptions that do not stand up to scrutiny. Most people feel that some amounts of inheritances should be taxed and the majority of the public would like to see the thresholds for paying tax on inheritance lowered from where it is now, not increased.

“When presented with a variety of options, Britons are often much more receptive to the idea of taxing inheritance. As we enter a new age of inheritance with over £100bn being passed on every year, we should have a grown up conversation with the public about how we balance people’s desire to leave something to their loved ones with their values about what a fair society looks like.”

Mubin Haq, CEO of abrdn Financial Fairness Trust, said:

“Policy makers are understandably cautious about reforming inheritance tax, as there is a perception that it is a deeply unpopular policy. This report highlights that the public hold more complex and nuanced positions.

“Much depends on individual circumstances but overall around 8 in 10 support some form of inheritance tax and that holds for voters across the political spectrum.”

Download the report.