This is not a personal finance column; I am offering no tax advice. But if you want to avoid wealth levies in future, especially a more draconian inheritance tax regime, it is time to embrace change.
The first step is to gain a good understanding of the distribution of wealth. The latest official UK data this month shows a remarkable stability in the wealth gaps between rich and poor over the 14 years since detailed figures have existed. Wealth — a person’s net worth — is much less equally distributed than income, but the spread is almost unchanged, defying predictions that inequality was set to rocket. Wealth has risen faster than incomes, however, increasing 20 per cent in real terms from £252,900 in 2006 to £302,500 in 2020 and it is that shift that sows the seeds of future trouble.
Beneath the benign headlines of stable wealth inequality are undercurrents in the distribution. These are simultaneously likely to raise future wealth inequality and to make any gap between the haves and the have-nots feel less fair.
It all stems from the rise in the importance of wealth to family budgets, increasing the inherent value of inheritance. With assets growing faster than incomes for many years, people’s ability to own property, enjoy the security of liquid savings or look forward to a decent retirement will depend increasingly on their parents’ efforts rather than their own.
Whether the research comes from the Resolution Foundation, Bath university or the Institute for Fiscal Studies, parents’ wealth now has far more weight than it did before in whether and when their children get to own property. The importance of inheritance in lifetime living standards impedes the ability of poorer young people to level up with their richer peers. For society, the risk is simple: it will not be possible to tell people that doing well at school, working hard and getting a good job is enough to guarantee a decent living standard in the UK of the 2030s and beyond.
Towards the right of the political spectrum, the wrong response is nonchalance. Ignoring access to social mobility is a recipe for backlash and populism among those unlucky enough to be born in the wrong family. Rhetorically, at least, the Conservatives understand this. The Labour party also knows that the instinctive error on the left is to reach for higher inheritance tax. This levy regularly polls as the most unpopular one because it penalises a virtuous desire to help our children, making them better educated and more stable citizens. People also feel it is a voluntary charge for the super-rich.
If we want to avoid these outcomes, we need to ensure realistic paths to decent living standards for young adults without the advantages of rich parents.
So we need a new bargain. On the economic side, we must redouble efforts to increase sustainable growth rates, raising the importance of income rather than family wealth in lifetime success. Lowering some of the absurd trade barriers the UK has erected with the EU would be a start. Ministers must also stiffen their backbones on planning reform against Nimbyism, so the nation can build more houses where people want to live and that they can afford.
The social aspect requires further efforts to embrace diversity and broaden access to good schools, universities and jobs. This requires persistent work to diminish the entrenched advantages of the rich and well connected.
Of course, it is utterly naive to suggest that this alone will be sufficient to remove the role of luck and privilege. We will still need a reasonably progressive tax and benefit system, including on inheritance, to even out some of life’s injustices.
But if we want to live in a reasonably content society and minimise inheritance taxes, it is best, collectively, not to ring the tax accountant, but to embrace diversity and stop being a Nimby.