10 Ways to Kill the Death Tax to Revive the UK Economy

The following ten ideas offer some creative alternatives to the UK’s inheritance tax (IHT) regime that could help transform the UK’s most hated tax into an engine of growth for the UK economy.

Ideas could be delivered independently or in combination to create a better IHT system.

The advantage of focusing on IHT is that the tax revenue will often take years or decades to reach the government purse, whereas people act now to avoid IHT so the benefits can be front-loaded, helping society immediately.

1.        The Laffer Levy

Inspired by the Laffer Curve that shows that as you increase tax rates beyond a certain level the amount of tax revenue decreases.

The Laffer Levy is an alternative to a wealth tax, where each individual would need to invest 5% of their wealth into a UK Taskforce Fund to deliver transformational investments to help the economy grow and bring down the costs of housing and energy.

The government would get access to hundreds of billions of pounds immediately (there would only be a 6-month window for people to invest or lose the IHT relief). It would take multiple decades to accrue that amount of money via IHT tax receipts.

More wealthy people would be likely to stay in the UK as there would be no IHT, and the Taskforce could operate like the vaccine taskforce, bringing experts from industry into government to deliver rapid, effective transformation.

2.        ‘Brewster’s Rule’

Inspired by the film ‘Brewster’s Millions’, where a man must spend $30 million dollars in 30 days in order to inherit $300 million.

Inheritors would have to spend up to 40% (the current level of IHT on estates) of their inheritance within the UK within 100 days of receiving their inheritance.

They would only be allowed to purchase depreciating assets, such as new cars or entertainment experiences, and only from UK-registered companies who pay tax in the UK.

This would provide a £10 billion injection of spend into the economy, helping to boost economic growth with spend on high-value items, and government would still collect significant income in VAT receipts.

Any money not spent would have to paid as IHT to the government, creating strong incentives for people to spend the money within the 100-day timeframe.

3.        Philanthropy

A more conventional solution, a percentage of the estate would need to be donated to a UK-registered charity instead of being paid as IHT.

A person could donate a lump-sum while they were still alive which would then make a certain portion of their estate IHT free, or they could choose where it would be donated after their death.

This idea would create a lot of middle-class philanthropists; thousands of people would suddenly be tasked with donating hundreds of thousands of pounds to good causes, which they would never otherwise be able to do, opening up the opportunity for new thinking in how to solve the UK’s problems.

There might even be innovation in the third sector, as new charities spring up purely targeting IHT donations at scale to deliver transformational change, disrupting the sector with new innovations and ‘Moonshot’ solutions to entrenched problems.

Any money not donated would be taken as tax by the government.

4.        From IHT to VC

Instead of paying IHT to government, the sum would have to be invested as Venture Capital into UK start-ups registered under the SEIS and EIS start-up investment schemes within 12 months of receiving the inheritance.

Investors would receive no tax relief on their investments, but they would get shares in the companies they invest in, so they’d have a chance of earning their IHT money back or even increasing the value (that increase would be subject to capital gains tax).

Those who were the savviest investors would gain the most, a fairer way of delivering an inheritance.

And UK start-ups would get access to billions of extra pounds of investment each year, helping to kick-start the economy.

A percentage of the investments could even be mandated for companies operating in low-income areas of the country, creating a financial incentive to launch in, say, former mining towns, helping to level up by creating an economic hub in low-income communities.

5.        Future Forfeit

In exchange for not paying tax on an inheritance received in excess of £500k, the beneficiary is made ineligible for a future state pension, unemployment or child benefits.

While beneficiaries would still have access to the NHS and other such services, they would not receive any form of Welfare from the government for the rest of their lives.

While this idea would involve cost to government now for future savings, it could be linked with other ideas in this set to offer long-term gains in addition to short-term benefits, helping to significantly reduce the cost of pensions over the long-haul.

6.        Pension Forfeit

Anyone that forfeits their pension receives a 0% IHT rate on their estate once they have forfeited their pension for two years, and on condition that they continue to forfeit their pension until death; if at any point they take the pension, they revert back to the 40% IHT rate on their estate.

For the first two years, government would be paying less in pensions and receiving IHT revenues, so there is a strong logic to making this policy happen quickly.

There are over 1 million higher-rate tax pensioners in the UK currently, which is expected to rise towards 3 million within the next 4 years, so it is likely this policy would save upwards of £6 Billion per year for the first two years, and then several billion per year thereafter as IHT revenues decline but more pensioners take up the deal.

7.        Electrify

The government wants more homes to install heat pumps, solar panels and batteries to help decarbonise the grid and reduce dependence on imported natural gas.

If houses that installed solar panels, heat pumps, and batteries were made either free of IHT or if the IHT allowance was increased by several hundred thousand pounds, this would provide a strong financial incentive for households to make those installations.

A limited time period to make those purchases, such as over the next two years, would encourage speed and scale, and government could even remove subsidies on those purchases since buyers would be making such large savings from avoiding IHT, saving taxpayers money while achieving the wider goal of an electric economy.

8.        Museum Assets

Instead of paying IHT to the government, beneficiaries would be allowed to buy assets for museums and heritage centres, so long as they provided those items on free loans to those institutions.

People might buy artworks for the National Gallery, for example, or steam locomotives for heritage railways; they could either be bought outright, or an equity stake in the items purchased alongside other inheritors.

The items purchased would have to be placed on long-term loan, for a minimum of ten years, after which they could be sold, donated, or retained as an asset.

This would provide a significant budget for such purchases, helping museum and heritage institutions to secure assets for display to the nation.

9.        British Stocks

There have been a lot of complaints that UK start-ups keep selling themselves to overseas owners, with the UK having too few organisations willing and able to buy them out.

IHT funds could therefore be retained by beneficiaries but would have to be invested into a fund to buy British companies to keep UK-ownership and help them grow.

This would create a fund to keep British ownership of businesses and also makes IHT less of a despised tax as people get equity in those companies, so the money is not lost.

Investment into the fund would be for a minimum of 10 years, helping to build an estimated £100 Bn fund over that time.

10.  Level Up Lottery

IHT revenues would not flow to government but rather go specifically into a weekly lottery for those in work on low incomes, providing a pool of £100m or more in prizes per week.

To enter, people would need to have been in work for at least 12 months continuously, be paying payroll taxes, and earning less than the median wage.

Winners would immediately have to pay back any unemployment benefits they had taken during their lives, or student loans and other such government support, but would keep the rest of the money.

Prizes would be £1 million each, creating 100 low-income millionaires each week and creating a powerful incentive to be-in and stay-in work.

The money would not be paid in a single lump sum but rather be paid out over several years to help prevent the losses seen by National Lottery winners, many of whom are broke within a few years.