Economists say inheritance tax is an efficient form of taxation, as it does not affect incentives to work or form companies in the same way as other taxes, according to a new report.
Government plans to abandon inheritance tax and replace it with a form of capital gains tax would in practice mean higher taxes levied on smaller inheritances, according to a report published on Tuesday by the Kalevi Sorsa foundation, a Social Democrat-linked think tank.
The report suggests that abolition of inheritance tax would benefit the wealthiest people who do not need to sell their inherited property at the moment of inheritance.
The government programme includes a proposal to investigate the possibility of replacing inheritance and gift taxes with capital gains tax, as Sweden has. In Sweden, taxes are only paid when inherited property is sold, and affect only the rise in value since the property was acquired.
Problems with inheritance taxes should be fixed under the current system, rather than ending it altogether, according to the report.
The Organisation for Economic Co-operation and Development (OECD) recommends inheritance taxes, as they are an efficient tax in economic terms and also help to mitigate income inequality.
Efficient tax
At present a person inheriting a 100,000 euro apartment has to pay inheritance tax according to the 100,000 euro value of the apartment. There is no capital gains tax to pay if the apartment is sold later, unless the value of the property increases between the moment of inheritance and the property's sale.
Under the current legislation, inheritance tax levied for close relatives inheriting such a property would be just under 9,000 euros. There would be no capital gains tax levied late, unless the value of the property increased after it was inherited.
"Under the Swedish model there is no tax levied at the moment of inheritance, but if the inheritor sells an inherited apartment worth around a hundred thousand euros, that the previous owner had bought for around 50,000 euros, they will be forced to pay some 30 percent of the difference in capital gains tax," said Lauri Finér of the Kalevi Sorsa foundation, who has previously served as a taxation policy adviser for the Social Democrats' parliamentary group.
Under that system, the person inheriting the flat would be considerably worse off than under the current inheritance tax regime.
Capital gains tax is 30 percent up to 30,000 euros, and 34 percent on gains above that level.
Statistics show that around 60 percent of inheritances in Finland are tax-free, as inheritance tax is not levied on inheritances worth less than 20,000 euros.