Even opponents of inheritance tax worried that cutting it will hurt public finances, think tank report finds

26 September 2023

There is support for keeping inheritance taxes (IHT) across the spectrum of public opinion when voters are given the opportunity to deliberate and engage in more in-depth conversations about the policy, according to a new report from cross-party think tank Demos.

Even those who are initially most negative about IHT are worried that cutting it will hurt public finances, the study reveals. Most people think IHT should remain as long as the right threshold is set.

Going beyond the headline polling on IHT to understand the subtleties of public opinion could give politicians confidence to keep or reform the system, rather than just rushing to scrap it, Demos said.

Politicians could expand cross-party support for the tax if they tie it to popular spending commitments, fix the loopholes, and link thresholds to property prices.

The study, based on the most in-depth polling to date on the subject as well as focus groups involving more than 100 members of the public, challenges the political orthodoxy that IHT is universally unpopular with the public.

The report, which has been funded by abrdn Financial Fairness Trust, comes amid reports that the Conservative government is considering cutting inheritance tax ahead of the general election.

Winning the Argument: How to unlock public support for inheritance taxation analyses the polling of more than 2,000 people and identifies four “clusters” of attitudes to inheritance tax in the UK. They are:

Aspirational Individualists (30% of the population): Non-graduate, older, home-owning, Conservative voters who are most opposed to inheritance taxation, thinking about IHT with emotive associations like ‘death tax’ and ‘double taxation’.

Fiscal Sceptics (22%): Middle-aged, middle income, renters (22%) who are generally opposed to taxing inheritances, strongly associating it with issues such as tax avoidance and having to do tax admin after a death.

Social Pragmatists (23%): Older, home county, home owning, high-earners who are generally supportive of taxing inheritances, particularly as they see it as a pragmatic way to contribute to public spending and its social benefits.

Radical Progressives (25%): Young metropolitan graduates who are most supportive of taxing inheritances. They are generally more positive about the tax system and public spending - seeing it as a progressive system to tackle structural problems.

Common themes that emerged among the four groups in focus groups were that it’s “important” for the government to have funds to support the most vulnerable in society at a time when investment is needed in our public services, with healthcare and education raised as examples. The research found that the more often groups link taxation to these uses, the more valuable they tend to see it to be.

Likewise there was universal recognition that scrapping inheritance tax could cause “unacceptable” trade-offs, such as other tax rises or spending cuts to public services, during a cost-of-living crisis. Most see the tax as a fair and justified tax as long as the threshold is set at the right level.

For policy makers looking to maintain IHT and even explore more ambitious reforms in the longer-term, the report puts forward a number of recommendations for how to frame the conversation in a way that would appeal to all of society.

These include emphasising the trade-offs by stressing that a cut to inheritance tax will be funded either by spending cuts to valuable public services or other taxes rising, both of which would be harmful during a cost-of-living crisis.

Further recommendations include emphasising current thresholds by reframing IHT as a tax on high-wealth estates in order to highlight that the large majority of estates worth under a million pounds are not charged inheritance tax, as well as associating inheritance tax more strongly with wealth rather than work.

Alongside the framing suggestions, the report proposes several reforms that should help convert many IHT opponents into supporters. They include linking IHT to popular spending commitments that provide a clear sense that people are getting something in return, such as a future generations fund or old-age social care.

Additional reforms include linking thresholds to property prices and fixing the loopholes that allow the wealthiest estates to pay a lower rate than others, something the report’s authors say will ease the widespread concerns that IHT is easy to avoid.

Dan Goss, researcher at Demos and co-author of Winning the Argument, said:

“If politicians make the right case and address public concerns, they could get broad support across the political spectrum for retaining inheritance tax. Our research suggests that policymakers can be bolder than the current debate and stand up in support of inheritance taxation and reform it in line with the public's priorities.

“We found that the public are worried that cutting inheritance tax, in today’s economic climate, would harm public finances and potentially mean cuts to public spending. This concern is felt even amongst those that are most against the idea of taxing inheritances.

“Policy makers must not take the public’s views for granted. They need to listen to the public in more depth to really understand the options available to them. This research challenges the idea that cutting IHT is an automatic vote winner - if politicians make the right case for it, the public will understand.”

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

“The public are increasingly savvy that tax cuts come at a price. Whilst inheritance tax is far from popular, even many of its staunchest opponents are worried it could lead to either tax rises elsewhere or cuts to valuable public services which have already faced years of severe under-funding."

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