Skip to content
Institute of Economic Affairs

Institute of Economic Affairs

Institute of Economic Affairs

Monday May 16, 2022
  • twitter
  • facebook
  • rss
  • Institute of Economic Affairs
  • Home
  • About
  • Staff
  • Jobs
  • Epicenter
  • Contact Us
  • twitter
  • facebook
  • rss
  • Blog
  • Film
  • Coronavirus
  • Research
    • Publications
    • Economic Affairs
    • EA Magazine
    • Brexit Unit
    • Int. Trade & Competition Unit
    • SMPC
    • Paragon Initiative
  • Media
    • Media Coverage
    • Press Releases
    • Media Enquiries
    • About IEA Comms
  • Students
    • Internships
    • Events and Conferences
    • Essay Competition
    • Student Resources
    • IEA Budget Challenge
    • Economics101
  • Events
    • Forthcoming Events
    • Past Events
  • Donate
    • Donate Now
    • Donate Monthly
    • IEA Patreon
    • Other Ways to Donate
    • Legacy Gift
    • Donate from USA
    • Contact Us
  • Home
  • About
  • Staff
  • Jobs
  • Epicenter
  • Contact Us

How high-tax Sweden abolished its disastrous inheritance tax

Anders Ydstedt
20 January 2016
Institute of Economic Affairs > Blog > Uncategorized
In 2004 the Swedish inheritance tax and gift tax was abolished by a unanimous vote in the Riksdag. In a new book ”Ten years without the Swedish inheritance tax. Mourned by no one – missed by few”, by Amanda Wollstad and myself, we tell the history of the inheritance tax, its abolition and what consequences it had on Swedish business owners and tax revenues.

The Swedish inheritance tax has existed in various permutations since the 17th century. The tax was assessed against property acquired through inheritance, bequest and, in some cases, life insurance. The tax was calculated on the value of the heir’s share of the estate, was progressive and varied depending upon the tax class to which the heir belonged. The inheritance tax rate reached a record high in 1983, with a top rate of 70 percent applicable to spouses and children. The phase-out commenced a few years later. In 2004, the year when it was repealed, the tax rate was 30 percent. The gift tax was calculated likewise.

Inheritance and gift taxes were never a substantial source of income for the Swedish state. Revenue from inheritance and gift taxes reached its zenith in the 1930s at about 0.3 percent of GDP. When the inheritance tax was repealed, the income equaled about 0.15 percent of GDP. The main reasons have instead been based on notions of fairness and wealth redistribution, and to complement and legitimise other tax legislation, such as the wealth tax.

The classic example of the destructive impact of inheritance tax was the surviving spouse who could no longer afford to live in the heavily taxed family home because all assets were tied up in the property. Likewise, many families were forced to sell family homes and holiday cottages. Such cases were far from unusual and even relatively low sums of tax due could cause tremendous personal harm. This may partly be because Swedes are, by international comparison, considered as having little readily available capital. The household savings rate is also low, perhaps due to high trust in collective welfare systems and the social safety net.

The major problem with inheritance tax arose in family businesses in connection with intergenerational succession. These problems had much more profound consequences upon society in general and the Swedish economy. The basis for taxation, even with the relief rules introduced on several occasions specifically to lighten the burden on small and family businesses, often consisted of tied assets. Business owners were compelled to withdraw liquid assets from the business. The income, taxed as dividends, was then used to pay inheritance tax. Even if the company had prepared for the distribution of the estate, tax planning takes time, energy and sometimes money away from the core operations of the business. It was not unusual that inheritance tax drained companies of so much capital that their future development was endangered.

Families like the Wallenbergs changed their core business into a foundation to secure its future. Others simply left the country, taking their fortunes and businesses with them. Tetra Pak founder Ruben Rausing, IKEA founder Ingvar Kamprad and industrialist Fredrik Lundberg all chose to emigrate, mainly due to Swedish tax policy.

In 2002, the Social Democratic government appointed a parliamentary inquiry to review and evaluate taxes on ownership. There seems to have been growing understanding among Social Democrats of the problems related to these taxes. There was also rising concern about how Swedish taxes on capital worked in a globalised world.

The parliamentary inquiry suggested in June 2004 substantial reductions of the inheritance and gift tax. But this was certainly not enough. Protests from entrepreneurs were huge and the response to the proposal was very critical.

In September 2004 the Social Democrats, the Green Party and the Left Party presented the news about the budget bill for 2005. They had all agreed to repeal the inheritance and gift tax altogether. The government wrote, “For reasons including improving conditions for running a business, the inheritance and gift tax is repealed, which will facilitate generational succession.”

The ongoing attempts to craft exemptions and provide relief to small enterprises and family-owned businesses had proven inadequate. Politicians finally realised that it was not possible to exempt, in any simple or predictable way, certain companies from the destructive effects of the inheritance tax without simultaneously undermining the foundations of the tax as a whole. I think German politicians, after Karlsruhe’s verdict, now face the same challenge.

The abolition of inheritance and gift tax marked the start of a broader debate on ownership issues in Sweden, a debate that eventually led to the abolition of wealth tax in 2007 and a more reasonable taxation of owner-led corporations. These reforms were made by both a Social Democratic government led by Göran Persson, and followed up upon by Fredrik Reinfeldt’s centre-right government.

The repeal of these destructive taxes has given Sweden a smarter tax system and has brought entrepreneurs and investment capital back to the country. A smarter tax system generates higher economic growth and thus higher tax revenues. The tax ratio declined from 51% of GDP in 2000 to 44% in 2014, even as tax income increased by SEK 260bn, adjusted for inflation. This is the result of several measures including the repeal of gift, inheritance and net wealth taxes and the institution of the in-work tax credit, which has meant that more people have jobs to go to.

Today Ingvar Kamprad and other entrepreneurs have moved back to Sweden and Swedish family business owners do not need to worry any more about inheritance tax planning. The political support for these reforms is strong, only the Left Party has changed its policy since 2004. Sweden still has the highest marginal tax rate in the world and taxes savings at nearly double the rate in effect elsewhere. We still desperately need lower taxes. But foreign readers of our new book might find some interesting facts and experiences from the Swedish inheritance tax reform in 2004.

Anders Ydstedt is a partner at Scantech Strategy Advisors, which advises major Swedish industry and business organisations. In 2004, he worked as a campaign manager at the Confederation of Swedish Enterprise against the inheritance tax.

SIGN UP FOR IEA EMAILS

Share this Story

previousTax and Fiscal PolicyThe ‘gender tax’ story doesn’t show what feminists think it showsRyan Bourne19 January 2016
nextRegulationDoes regulation serve the public interest?Christopher J. Coyne and Rachel L. Coyne 21 January 2016
latestEconomic TheoryBusiness sentiment and the economy: lessons from history?Ali Kabiri11 May 2022
previous
Tax and Fiscal Policy

The ‘gender tax’ story doesn’t show what feminists think it shows

19 January 2016
next
Regulation

Does regulation serve the public interest?

21 January 2016
latest
Economic Theory

Business sentiment and the economy: lessons from history?

20 January 2016
Institute of Economic Affairs
BE PART OF THE IEA TODAY
  • Donate
  • Like
  • Follow
  • Watch

NEWSLETTER SIGN UP

Privacy Policy
© Institute of Economic Affairs
REGISTERED IN ENGLAND 755502, CHARITY NO. CC/235 351, LIMITED BY GUARANTEE
×
We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept”, you consent to the use of ALL the cookies. However you may visit Cookie Settings to provide a controlled consent.
Cookie settingsACCEPT
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may have an effect on your browsing experience.
Necessary
Always Enabled

Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.

Advertisement

Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.

Performance

Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.

Analytics

Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.

Functional

Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.

Uncategorized

Undefined cookies are those that are being analyzed and have not been classified into a category as yet.

Save & Accept
Powered by CookieYes