New inheritance tax idea would hit nine out of ten Scottish estates

Nine in ten Scottish estates would be taxed under a contentious inheritance levy proposed by a leading think tank.
The report proposes imposing a 10 per cent tax rate on all Scottish estates worth more than £36,000. Picture: TSPLThe report proposes imposing a 10 per cent tax rate on all Scottish estates worth more than £36,000. Picture: TSPL
The report proposes imposing a 10 per cent tax rate on all Scottish estates worth more than £36,000. Picture: TSPL

The Institute for Public Policy Research (IPPR) Scotland have flagged introducing a local inheritance tax to raise up to £200 million each year as part of a tranche of “new” levies to raise funds for hard-pressed public services.

And the report, which proposes imposing a 10 per cent tax rate on all Scottish estates worth more than £36,000, has been backed by the Scottish Greens, which called for politicians to be “braver” on the issue.

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The document also suggests introducing a new “payroll tax” that could bring in more than £600m.

The findings have been welcomed by the Scottish Government, which says talks are already under way with local councils in Scotland about handing them new financial powers. But it comes after recently announced plans for a parking tax in Scotland provoked a public backlash, while a planned “tourist tax” has also angered the hospitality industry.

The Scottish Parliament has powers, through local tax controls, to introduce a range of new local taxes, alongside council tax and business rates, as long as revenues go to local government.

IPPR Scotland director Russell Gunson said: “New taxes could see us put our money where our mouth is on the huge priorities facing Scotland. Our politicians should be far more ambitious on tax, thinking bigger to build a stronger, more progressive tax system that better narrows wealth inequalities, tackles environmental breakdown and delivers a fairer economy.”

The report seeks to illustrate what may be possible and outline areas for future debate.

The vast majority of Scottish estates escape the UK inheritance tax threshold, which applies at £325,00. In 2015-16, the latest year for which statistics are available, inheritance tax raised £4.3 billion across the UK, with just £213m of this coming from Scotland.

The total value of all estates across Scotland in 2016-17 totalled £5.6bn. Of this, just £900m – about 16 per cent – was taxable. The new system suggested by the IPPR would have seen about 22,500 estates affected in 2016-17 – a total of 92 per cent of all estates in Scotland. The average value of all estates over the £36,000 threshold north of the Border came in at £247,000, meaning an average tax bill of about £24,000 for those affected.

The report also suggests a local carbon tax, based on Canada’s new carbon tax, could be levied on firms which “import and deliver” environmentally unfriendly fuels, helping the battle against climate change.

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Firms which pay workers a low wage could face a local payroll tax that could raise up to £600m a year and encourage pay hikes for low earners.

Scottish Greens local government spokesperson Andy Wightman said successive governments in Scotland have been “too timid” to use the new tax powers. But Taxpayers’ Alliance research director Duncan Simpson said: “Inheritance tax is morally repugnant, so introducing a so-called progressive version would be totally wrong.

“Though only a small portion of estates pay the tax, it affects families who are grieving, and could mean that the assets which should be passed on to loved ones are taxed for a further time.”

A Scottish Government spokeswoman said: “We are committed to making local taxation more progressive while improving the financial accountability of local government.”