There are a number of policy changes that Labour could implement to cast the net even further.
Julia Rosenbloom, of the law firm Shakespeare Martineau, said the party’s silence on inheritance tax showed these policies were “unlikely to be popular with the public”.
For example, Labour could choose to scrap some of the tax relief for lifetime gifts and ban people from gifting wealth early without incurring tax.
“Currently, there is no gift tax as long as the donor survives seven years after the gift,” Rosenbloom said. “Neighboring European countries have already introduced a ‘gift tax’ and the UK may follow suit.”
Alternatively, Labour could impose mandatory inheritance tax on family homes by abolishing the housing exemption.
This extra £175,000 allowance allows homeowners to transfer £500,000 (£1 million for married couples) tax-free to their family members, provided their children or grandchildren inherit the main property.
Andy Butcher of asset manager Raymond James said cutting the exemption would be a “further blow” to households, particularly those with the majority of their wealth in their homes.
“This will once again affect those who may not consider themselves the best off in society, families who have probably been very squeezed by the Conservative government over the last few years, but it will not affect the best off in society.”
Hollands said another concern was whether Labour would subject pension funds to inheritance tax – currently pensions can be inherited free of the controversial tax.
The economic costs of inheritance tax
The UK’s inheritance tax rate of 40% is the highest among OECD countries.
The think tank Centre for Policy Research calls the tax “an inefficient, behaviour-distorting tax that penalises work, savings, investment and capital accumulation, with potentially significant economic consequences in the long run.”
While inheritance tax can be very painful for families, the benefits to the public purse are surprisingly small.
An OECD study found that inheritance tax generates relatively little revenue.
On average, they account for just 0.5% of a country’s total tax revenues. In fact, only four OECD countries – Belgium, France, Japan and Korea – account for more than 1% of total tax revenues.
The ultra-rich generally have easier access to tax breaks or to move to lower-tax countries, meaning families with wealth tied up at home are often hit hardest.
In the past few decades, several countries have abolished inheritance taxes for this reason, and also because of concerns that they would drive away wealthy business owners.
The most obvious example is Sweden, which abolished inheritance tax in 2004 in response to a wealthy exodus.
Business leaders including Tetra Pak founder Ruben Rausing, IKEA founder Ingvar Kamprad and businessman Fredrik Lundberg fled because of punitive tax policies.
