Inheritance taxes can be an important tool in addressing inequality, especially in the current context of ever-rising wealth inequality and new fiscal pressures associated with the COVID-19 pandemic, according to a new report by the Organization for Economic Cooperation and Development.
The report highlights the high degree of wealth concentration in OECD countries, as well as the unequal distribution of wealth transfers, further reinforcing inequality. On average, inheritance and gifts reported by the richest households (top 20%) are about 50 times higher than those reported by the poorest households (lowest 20%).
The report notes that inheritance taxes, particularly those targeting relatively high levels of wealth transfers, can reduce wealth concentration and improve equal opportunity. He also notes that, in general, inheritance taxes have been found to generate lower efficiency costs than other taxes for the wealthy and are easier to estimate and collect than other forms of wealth tax.
Most OECD countries collect inheritance or inheritance taxes: 24 in total. However, these taxes usually generate very little income. Currently, only 0.5% of total tax revenue is earned from inheritance, inheritance, and gift taxes on average in the countries you collect.
Generous tax credits and other forms of exemption are a major factor limiting income from these taxes, according to the report. In addition to reducing income, aid allocations primarily benefit wealthier families, reducing effective escalation of inheritance and inheritance taxes.
People are often able to transfer large amounts of tax-free real estate to close relatives thanks to higher tax exemption limits. Tax exemption is also common for transfers of specific assets (for example, primary residence, commercial and agricultural assets, pension assets, and life insurance policies). In many countries, inheritance and inheritance taxes can also be largely avoided by gifts in life, given their more favorable tax treatment.
These provisions reduce the number of transfers of wealth subject to tax, sometimes dramatically. For example, in eight countries with available data, the share of property subject to inheritance tax was the lowest in the United States (0.2%) and the United Kingdom (3.9%) and the highest in Switzerland (12.7%) (canton Zurich). And Belgium (48%) (Brussels-Capital Region).
“While most OECD countries collect inheritance and inheritance taxes, they play a more limited role than they can in increasing revenues and addressing inequalities, because of the way they are designed,” said Pascal, Director of the Organization for Economic Cooperation and Development (OECD) Center. . Policy and tax administration. “There are strong arguments for making more use of inheritance taxes, but better design will be necessary if these taxes are to achieve their goals.”
The report highlights the wide variation in inheritance tax design across countries. The level of wealth that parents can transfer to their children tax-exempt ranges from around 17,000 USD in Belgium (Brussels-Capital Region) to more than 11 million USD in the United States. Tax rates also vary. While most countries apply progressive tax rates, third countries apply flat tax rates, and tax rate levels vary widely.
The report proposes a range of reform options to improve potential income, efficiency, and fairness in inheritance, inheritance, and gift taxes, noting that reforms will depend on country-specific circumstances.
To make these taxes more acceptable to the general public, the report stresses the need to provide citizens with information about inequality and the way inheritance and inheritance taxes work, as they tend to be misinterpreted.
Fountain: Organization for Economic Cooperation and Development
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