How Sweden ditched inheritance tax – and boosted its economy
Britain’s bloated tax system is raking in more money than ever from inheritance tax. The Government earned a record £7.1bn last year, and the proportion of deaths hit by a bill has roughly doubled since the Tories came into power.
For 14 years the Government has failed to fix a levy that has been condemned as fundamentally un-Conservative and already abandoned by much of the Western world.
Sweden said goodbye to inheritance tax almost two decades ago, making it the first country to kill off the tax under a social democrat government.
The Telegraph’s campaign is calling on the Government to follow in Sweden’s footsteps and abolish inheritance tax in Britain, which has been wreaking havoc on readers’ lives.
Anders Ydstedt, of the Svenskt Näringsliv, a body which represents Swedish businesses, said the abolition of its inheritance tax was a reform that attracted rare cross-party support.
“The situation in Britain looks very much like Sweden before we scrapped the tax,” he said. “It is hitting people who are not really wealthy and it is creating anger in much broader groups.”
Britain’s basic allowance for inheritance tax has been frozen at £325,000 since 2009. This, combined with a boom in house prices over the past decade, has dragged a rising number of ordinary families into paying the tax.
“This is when it starts to get more attention politically,” Mr Ydstedt added. “In Sweden when it got to this point, all parties, from the Communists to the Conservatives, voted to abolish our inheritance tax.”
How the Swedish inheritance tax met its end
Inheritance tax had existed in Sweden, in various shapes, since around the 17th century. The tax rate was progressive and varied according to the beneficiary – but reached a record high in 1983, when grieving families were forced to pay as much as 70pc on their inheritance.
This eye-wateringly high rate triggered its gradual wind down – and by 2004, the year it was abolished, the rate had fallen to around 30pc. Still, like in Britain, the threshold for triggering an inheritance tax bill remained very low for immediate family, at just 70,000 Swedish krona, or around 101,210 krona (£7,462) in today’s money.
Daniel Waldenström, a professor of economics at the Swedish Institute for Business Research, said this meant around a third of families in Sweden had to pay the tax. “That is a very high number if you compare it with other countries,” he said.
Mr Ydstedt added that in thousands of cases widows and widowers were forced to abandon their family homes, with little wealth outside of their property able to foot the bill.
Despite the pain this inflicted on thousands of Swedish families, inheritance tax was by no means a significant revenue raiser for the government. Receipts from inheritance and gift taxes peaked in the 1930s, when they accounted for less than 1pc of gross domestic product.
Unlike in Britain, Sweden offered no inheritance tax relief for family-owned businesses. This was disastrous for Swedish enterprise, where around nine in 10 companies were owned by people related to each other in 2004.
Professor Waldenström added: “Entrepreneurs left Sweden and in the worst case businesses did not grow as much as they wanted to,” he said.
“Well-known large business families moved abroad in the 60s, 70s and 80s.”
TetraPak founder Ruben Rausing, Ikea founder Ingvar Kamprad and industrialist Fredrik Lundberg all chose to emigrate before the tax was abolished – taking their fortunes and businesses with them.
Mr Kamprad returned to the country only after the levy was scrapped.
Stefan Ränk, head of the family-owned real estate group Einar Mattsson, told the Svenskt Näringsliv employers’ organisation in 2021: “We were probably the last ones to, out of dignity, pay any significant inheritance tax in the country.
“A lot of work was required to handle the tax, and the issue was present in every strategic decision in the company. The inheritance tax influenced risk-taking and capital structure, and had a limiting effect on the business. The 200 million [krona] we paid in inheritance tax would, for example, have been enough capital to build 1,000 new apartments.”
Business roars back
With powerful families so close to the heart of the Swedish economy, it is little wonder the abolition of inheritance tax helped the nations’ entrepreneurship to bounce back.
“There was a boom in ownership transfers,” Mr Ydstedt said. “Not only between families, but trying to find better external owners for the business. It led to more wealthy people moving back to Sweden, and that ultimately has been a positive for taxes.”
Meanwhile, the Swedish tax authority found the removal of the tax had encouraged the return of capital back into the country. It received almost 8,000 “self-corrections” from individuals who chose to report wealth previously kept abroad from 2010 to 2014.
Mr Ydstedt added that the abolition of the tax had massively reduced the administrative burden on the Swedish tax authority. “They have much less work to do because the levy was one of its most complicated taxes,” he said.
“After we abolished inheritance tax, the removal of wealth tax followed a few years after. Yet while we have lower taxes, we have increased tax revenues – it shows that if you abolish a stupid tax that is complicated and forces wealthy people to leave the country, you get more tax revenue when they return. That is the Swedish experience.”
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