Inheritance tax | Report: The abolition of inheritance tax pushed by the government would benefit the wealthiest

Heritage- and waiving the gift tax would benefit the wealthiest Finns the most, who would have no need to sell inherited property for a long time, at least completely.

In its report published on Tuesday, the Kalevi Sorsa Foundation suggests that correcting the current inheritance tax would be a better option than Petteri Orpon the transition to the Swedish model planned by the government.

In the Swedish model, the inheritance and gift tax would be replaced by a more extensive taxation of the profit on the transfer of inherited property. The tax would therefore only be paid when the property is sold.

“The findings of the report indicate that the changes that are the subject of the government’s report would increase the taxation of those receiving small inheritances, while the capital gains tax paid on the transfer of inherited property would generally increase. Instead, waiving the inheritance tax would primarily benefit the wealthiest families,” says the tax expert who wrote the report and executive director of the Kalevi Sorsa foundation Lauri Finér in the bulletin.

In the report it is stated that inheritance and gift tax is a good form of tax from the point of view of economic efficiency and equality, and it is not profitable to give it up. According to the report, its problems can be solved by changing the current model.

In the report, the foundation presents 12 solutions to correct the problems of the current inheritance tax. The solutions are intended to facilitate the payment of inheritance and gift tax and to prevent those who receive millions of inheritances from avoiding the payment of inheritance taxes.

Extending the payment period for inheritance taxes is proposed as a key solution, which is also included as a goal in Orpo’s board program.

Other proposed methods include increasing the progression of inheritance and gift taxation and clarifying the valuation of assets.

HS dealt with the problems of inheritance tax in April of this year.

Problems with the payment of inheritance taxes can arise, for example, for owner-occupiers when a spouse dies, if the widow remains living in the shared home. Heirs have to pay inheritance tax on assets that they cannot control and cannot convert into money. Problems can also arise if the inherited property is difficult to realize, such as real estate or shares of an unlisted company.

According to the taxman, the amount of inheritance taxes ending up in foreclosure has been steadily increasing since 2019.

This year about 12 million euros in inheritance taxes ended up being confiscated while in 2019 the figure was four million euros. The number of deaths has increased by approximately 16.6 percent since 2019, but the amount of inheritance taxes that have ended up in foreclosure has increased by 192 percent in the same period.

The Federation of Family Businesses proposed at the beginning of March in his opinion piece abolition of inheritance tax and transition to the Swedish model mentioned in the government program. As an easier option, the union proposed extending the inheritance tax payment period to ten years.

Kalevi Sorsa foundation according to the report, the research review does not support waiving the inheritance tax. According to the Organization for Economic Development and Cooperation OECD, inheritance tax is a good form of tax from the point of view of economic efficiency and equality.

“The majority of researchers consider the inheritance and gift tax to be a good tax in comparison, which is at best beneficial for the national economy, as it even increases incentives for work and entrepreneurship,” says Finér in the press release.

According to the report, inheritance tax encourages companies to find the most enthusiastic and competent successor in situations of change of ownership, while taxation does not encourage transferring the company to heirs. The report also states that large inheritances and gifts have been found in studies to reduce entrepreneurship and participation in working life.

Inheritance and gift tax is also said to promote equality of opportunity and curb wealth differences. In Finland, the wealth of households has been concentrated on the wealthiest percent continuously since the 1980s. In the years 2017–2019, the share of the highest income decile in the value of inheritances and taxable gifts was 39 percent.

The report states that inheritance and gift tax is easier to implement compared to wealth tax, as it does not require annual valuation of assets.

The concentration of wealth could be curbed by increasing the progression of inheritance and gift tax, reducing the protection for the change of generations and preventing tax planning related to international migration.

Inheritance tax giving up and switching to the Swedish model would increase economic inequality, according to the report. The change would probably mean higher overall taxation for those receiving small inheritances, when, for example, the property to be inherited was sold in connection with the distribution of the inheritance.

Today, approximately 60 percent of inheritances are tax-free, as their value falls below the lower limit of inheritance tax of 20,000 euros.

In the case of large inheritances, in the Swedish model, taxes could remain uncollected even for generations, when the inherited business assets did not need to be realized. Due to high capital gains taxes, the model also does not encourage the sale of assets received as a gift or inherited, such as a family business, even if it makes sense for the company.

Sweden waived inheritance and gift tax at the beginning of 2005. Norway also operated in the same way in 2014. However, inheritance and gift tax are used in most western countries.

Surveys according to the inheritance tax is an unpopular form of tax in Finland as well.

The report states that the unpopularity of the tax is partly influenced by the problems related to paying it. Inheritance tax can be perceived as troublesome and the future tax bill to be paid at once can also be so large that it leads to the previously mentioned payment problems. The heir may also to have to realize the inherited property against their will to pay inheritance tax.

The Kalevi Sorsa Foundation believes that the problems of the current tax system could be solved and that the tax collection could also be increased with the help of changes.

“Simply tightening the tax base to curb inheritance tax planning could bring hundreds of millions more in tax revenue per year. The same amount could be accumulated by reforming the inheritance tax scales to be more progressive so that the tax on inheritances of millions would increase and the tax on small inheritances would be reduced,” says Finér in the press release.