UK Prime Minister Rishi Sunak discusses plans to gradually abolish inheritance tax

British Prime Minister Rishi Sunak recently visited ‘Little University College’ near London where he had a conversation with trainees. The purpose of his visit was to discuss the gradual abolition of the British inheritance tax, which can reach up to 40%, according to The Times. The plan to abolish this tax has gained momentum due to increasing public support ahead of the upcoming general election in the country. Many British politicians believe that it is unfair to impose taxes on inherited assets that have already been accumulated through the payment of income tax over a long period. In response to these concerns, Prime Minister Sunak is working on improving the system and is expected to announce a phased plan to eliminate inheritance tax soon. If implemented, the UK will become the second country among the G7 nations, after Canada, to eliminate this tax. The current inheritance tax rate in the UK is 40%, the fourth highest among OECD member countries. The plan to abolish inheritance tax has gained support from both the public and the Conservative Party, as many consider it unfair to tax assets that have already been subjected to income and other taxes. In other countries such as the United States and France, discussions on eliminating or reducing inheritance tax are also taking place. Last year, US Senator Kevin Cramer proposed a bill to repeal the federal inheritance tax, and in France, several candidates in the presidential election proposed increasing the inheritance tax deduction limit. Overall, there is a growing trend among countries to reform or eliminate inheritance tax due to public dissatisfaction and concerns over economic impact.
Sunak talks to vocational trainees – British Prime Minister Rishi Sunak (far left) visits ‘Little University College’ near London on the 21st (local time) and talks to trainees. The British daily Times reported that Prime Minister Sunak plans to gradually abolish British inheritance tax, which can reach up to 40%. /Reuters News1

The United Kingdom, the founder of the inheritance tax, is pursuing a plan to gradually abolish the inheritance tax which has been in force for over 200 years. This measure is in response to growing public opinion on the abolition of inheritance tax ahead of the general election, which is planned to be held as early as the end of next year. British politicians believed that the system of imposing taxes again in the form of inheritance tax when transferring assets accumulated by paying income tax over a long period to children was unfair and began to improve the system. On the 24th (local time), The Times reported, “British Prime Minister Rishi Sunnack plans to soon announce a plan to phase out inheritance tax.” It is very likely that a draft will be prepared before the Conservative Party convention next month and then presented as a representative pledge for the House of Representatives election.

The United Kingdom, which introduced inheritance tax in 1796, applies a flat tax rate of 40% to inheritances over 325,000 pounds (about 540 million won). Based on the top tax rate, it is the fourth highest tax rate among member countries of the Organization for Economic Co-operation and Development (OECD), following Japan (55%), Korea (50%), and France (45% ). However, unlike Japan, which has a progressive tax rate structure, the tax burden can be considered higher in terms of the single tax rate. If the tax system is reformed according to Sunnack’s plan, the UK will be the second country among the G7 (seven countries) to abolish inheritance tax, following Canada (1971). Bloomberg reported that Prime Minister Sunnack said at a Conservative Party event last month, “We are addressing the inheritance tax issue to support the people’s desire (for success).”

Inheritance tax, which began to be introduced in all countries in the 20th century for a very small number of wealthy people, including aristocracy, has become a tax that has a significant impact even on the middle class as asset values ​​rise. As public discontent grew and capital flowed abroad to avoid high inheritance taxes, 10 OECD countries, including Canada, Australia (1979), Sweden (2005), and Norway (2014), abolished inheritance taxes.

Korea, which introduced the inheritance tax in 1950, imposes an inheritance tax of up to 55% on estates exceeding 1 billion won. With the recent death of Samsung Chairman Lee Kun-hee in 2020, measures to reform the excessive inheritance tax have been reviewed, but no clear results have yet been achieved. Park Hoon, professor of taxation at Seoul University, said, “In the past, most countries introduced a system to properly collect income tax, which was avoided through tax evasion, at the time of death under the name of inheritance tax. ” He added, “Given the current reality of transparent and accurate taxation, the justification is lost. “Taxes,” he said.

Many people in Britain and the Conservative Party believe that inheritance tax is unfair because income taxes and other taxes have already been paid in the process of accumulating assets. The Times recently reported, “Voters believe imposing an inheritance tax on assets raised with money left over after taxes is unfair,” adding, “Inheritance tax is the tax people hate the most .” In a survey of 1,700 adults by class and age last year by YouGov, a British public opinion research company, 48% of respondents said they were in favor of abolishing inheritance tax completely, which was higher than the 37% who oppose it.

One of the biggest reasons is that the environment at the time the inheritance tax was introduced was different to the current reality. The reason why Britain initially introduced and strengthened the inheritance tax was to raise money for the costs of war together with the judgment that the problem of economic polarization had to be solved after the French Revolution at the end of the 18th century. However, in 1940, when the tax rate rose to the 40% range, people appeared who said, “I’d rather destroy the house.” Recently, although asset values ​​have increased, the inheritance tax system has not kept up well, and discontent has intensified as even the middle class rather than the rich have to pay taxes. Paul Johnson, director of the British Institute for Fiscal Studies (IFS), pointed out that, “Rich people who can smuggle their assets abroad can easily avoid inheritance tax, but families whose only property is a house are stuck paying the tax.” The fact that royal families, including King Charles III, whose assets are estimated to be worth at least 3 trillion won, are not subject to inheritance tax has also fueled discontent.

Graphics = Yang Jin-kyung

As public opinion on the inheritance tax declines, other countries such as the United States and France are also following measures to eliminate or ease the inheritance tax. Last March, US Senator Kevin Cramer (Republican, North Dakota) proposed a bill with Senator John Thune (Republican, South Dakota) to repeal the federal inheritance tax. Rep. Cramer said, “When a loved one dies, everyone faces a huge tax bill from Washington, DC (the federal government). “Getting rid of inheritance tax will give people peace of mind, protect small businesses and farms, and help families maintain their legacies.”

In the United States, the inheritance tax deduction limit was raised from $5 million to $10 million (about 13.3 billion earned) in 2018. This means that the current inheritance tax deduction limit in the United States is 13 times higher than in Korea (KRW 1 billion), which means that only a very small number of people, around one or two in every 1,000 people, pay inheritance tax. Nevertheless, abolition theory continues to emerge. Some Republican lawmakers criticize the inheritance tax as a “death tax,” saying, “You have to sell your farm to pay the inheritance tax.”

Discussions on inheritance tax reform are also underway in France. Before the presidential election in April last year, the majority of candidates proposed expanding the inheritance tax deduction limit for children from 100,000 euros to a maximum of 300,000 euros. In Japan, the highest inheritance tax rate is 55%, which is higher than in Korea, but the family business inheritance system is being developed. In the case of unlisted small and medium-sized enterprises, a 5-year payment deferral system is implemented for the entire inheritance tax due to the inheritance of stock. If a child continues to serve as CEO of a company inherited from his father, he will not have to pay inheritance tax even after five years. Korea also introduced a deferral system for payment of inheritance tax after revising the law late last year, but retroactive requirements such as employment and share ratio are strict.

According to the OECD and the Korea Economic Research Institute, among OECD member countries (38 countries), 23 countries have an inheritance tax. Among them, four countries, including Korea, the United States, the United Kingdom, and Denmark, choose the ‘heritage tax’ method, and 19 countries, including Japan, France, Spain and Ireland, choose the ‘heritage acquisition tax’ approach. The estate tax is determined on the basis of the total inheritance and is divided into 1/N shares by the children. Inheritance acquisition tax is a method of placing inheritance tax on the true inheritance of each child. In this case, each child is eligible for a deduction and a relatively low tax rate is applied, which has the effect of reducing the tax burden.

Among the 19 countries that impose inheritance tax, Luxembourg, Lithuania, Slovenia, and Hungary have an inheritance tax rate of 0% for children’s inheritance. Among OECD member countries, 15 countries either had no inheritance tax system originally or have abolished inheritance tax, such as Estonia and Latvia. Most countries without an inheritance tax supplement the system by imposing taxes on inherited property in the form of income tax or capital gains tax. Inherited property is assumed to be similar to other income and is taxed accordingly. For example, in Sweden, which abolished the inheritance tax system in 2005, capital gains tax is strictly imposed when children dispose of inherited property in the future. Among non-OECD countries, Russia, China and India also have no inheritance tax.

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