How can you make inheritance fairer?
What could be wrong with leaving money to your children in your will?
Economists on both the left and right agree that inheritance creates a problem for equality of opportunity, by giving children with wealthy or thrifty parents an advantage over those without such luck.
BBC Radio 4's Analysis explores three suggestions about how to make inheritance fairer.
Stuart White: Provide a universal financial inheritance
Professor Stuart White is director of the Public Policy Unit at Oxford University. He thinks inheritance is a very good thing, especially helpful in early adulthood when the money could be usefully spent on further education, setting up a business, or buying a car.
The big problem with the current system, he thinks, is that only some people benefit.
He favours a universal inheritance, what he calls a "capital grant". Everyone would receive the same amount at the same age, to be funded by taxing inheritance more heavily.
He suggests giving the grant to 18-year-olds, and linking the amount to the cost of a university degree:
"You want an amount that's sufficient to enable people to really launch into their adult lives in a creative and independent fashion, and in a way that contrasts with the kind of world we're creating, where young adults start their lives heavily indebted."
This system would have three advantages:
- It is more equal: everyone gets an inheritance.
- It is predictable: you know that you will receive an inheritance at a certain age.
- It reduces dependency: because it is paid automatically, it is not at the discretion of family members who could exercise control by threatening disinheritance.
In other words, it takes some of the luck out of the equation. Children do not miss out because their parents have nothing to leave them, or choose to leave them nothing.
It also reduces the power of parents to give their own children a financial advantage.
"Public attitudes are generally very sceptical towards taxation of inheritance," he admits.
But he thinks that could change, pointing out that we already accept limitations in what parents can do for their children.
"We have the concept of nepotism which picks out a wrongful way of advantaging your children.
"It shows how people can come to accept that there are legitimate constraints related to equality of opportunity.
"If we can do it there, I don't see in principle why we couldn't ultimately do it in relation to transfer of wealth as well."
Toby Young: Equalise genetic inheritance
Toby Young is an associate editor of the Spectator and chief executive of the West London Free School Academy Trust. He argues "mucking about with inheritance tax is going to have zero impact on social mobility."
Inequality starts much earlier, he says, with our genetic inheritance.
It is thought that intelligence is largely down to our genes, and that our capacity for hard work may be inherited too.
Even in a meritocracy where brains and graft are rewarded, inheritance still has a part to play in determining status. But, says Young, "it is what you inherit via your parents' DNA as opposed to their tax-efficient trust funds."
He believes if we are serious about equalising opportunities, we need to consider equalising genetic inheritance.
He imagines a near future where the "intelligence gene" has been identified.
"That creates an opportunity to say to parents who want to have a child, 'let's fertilise a number of eggs, say 100. Let's then look at them under a microscope in vitro, find those which have the highest intelligence genes, and take those babies to term'."
This technology would be made available free of charge only to people in the lowest socio-economic group, giving their offspring an improved chance to compete against children born into wealthier families.
He calls the idea "progressive eugenics".
"It may be the crossing of a Rubicon," admits Young. But he says it would "be a way of breaking the cycle of deprivation which, controversial though it is, actually might work unlike everything else governments have tried".
Such technology may never be possible. It is also disputable whether selecting high intelligence alone would result in an improved chance of success in the marketplace. There are also worries about intrusiveness.
But as a thought experiment, the proposal highlights the difficulty of achieving equality of opportunity. It is not only financial inheritance but genetic inheritance that makes equality hard to achieve.
Current UK Inheritance tax rules
- Inheritance Tax is due if a person's estate (their property, money and possessions) is worth more than £325,000 when they die. This doubles to £650,000 for married couples and civil partners, as long as the first person to die leaves their entire estate to their partner
- From April 2017, parents will each be offered a further £175,000 "family home allowance" to enable them to pass property to children tax-free after their death
- Inheritance Tax is charged at 40% on anything above the threshold. The rate may be reduced if 10% or more of the estate is left to charity
- No Inheritance Tax is due on any gift married couples or civil partners give each other, as long as they live in the UK permanently
- No Inheritance Tax is due on up to £3,000 worth of gifts given away by the deceased in each tax year
- Larger gifts may be subject to Inheritance Tax if the giver dies within seven years of giving the gift
- There are also exemptions for gifts given out of regular income, gifts worth up to £250 and wedding and civil partnership gifts
Source: Gov.uk. HM Treasury
Dr Daniel Halliday: Tax old wealth differently
Dr Daniel Halliday is a lecturer in political philosophy at the University of Melbourne. He thinks we would be better off targeting another kind of inequality that is exacerbated by inheritance.
"Status inequality has to do with the way in which people relate to each other as superiors and inferiors."
This is more of a problem in old countries like Britain which were founded on feudal systems. Wealth has long been concentrated in certain families. Inheritance over generations has sustained that and created a hierarchical society.
He agrees with Toby Young that "the circumstances of your birth are a very effective predictor of what's going to happen later," but says one factor is the age of the family fortune.
"If you're born to parents who are wealthy, and their parents were wealthy and their parents were wealthy, chances are you've been born into a quite different set of circumstances than if you're born to parents who might be wealthy but have only recently-produced wealth."
Old money brings advantages other than wealth: it comes with a name, contacts and status. Over time Dr Halliday believes this creates a more divided society, where people at the top and those at the bottom rarely interact. They go to different schools, work in different professions and socialise in different places.
"That can be quite socially corrosive."
His solution is to tax inheritance according to its age rather than its size. The older the money is, the more you tax it.
This would mean that parents who have worked hard and earned their own money could pass it onto their children. But there would be more restrictions on passing on money that they themselves had inherited.
It is not easy to see how this could be implemented. But it does highlight one of the effects of inheritance in a class-based society.
All three of the proposals have their pros and cons. What they demonstrate is how inheritance is implicated in inequality, and the tension that exists between the desire for a fairer society and the parental instinct to help your own children in any way you can.