WM Market Reports

GUEST COMMENT: The Growing Importance Of Inherited Wealth In Europe - Julius Baer

Robert Ruttmann, Julius Baer, Investment Specialist, 27 November 2014

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The following article, by Robert Ruttmann, who is an investment specialist at Julius Baer, looks at how inherited wealth is likely to become more, not less, important in Europe.

The following article, by Robert Ruttmann, who is an investment specialist at Julius Baer, looks at how inherited wealth is likely to become more, not less, important in Europe in the years ahead due to a variety of factors. As always, the editors of this publication invite readers to respond with their views.

Whereas rates of inheritance tax in the first half of the 20th century were constantly increased in order to cover the costs of war, the second half of the century saw a reversal in this trend. Lower inheritance tax rates and higher capital returns mean that the importance of inherited wealth is likely to grow in Europe in future.

The passing on – or the bequest – of assets from one generation to another has long been an important part of human society. Inheritance is inextricably linked with a right of ownership. This right also includes the freedom to decide who should receive assets upon the death of their owner. However, this right of ownership is not absolute. This became clear in the 20th century when many nations greatly increased the rates of inheritance tax to finance the huge costs of war.

Rates of inheritance tax in Europe’s largest economies increased sharply during the two World Wars as countries required more revenue with which to finance the high costs of war. This trend is best exemplified by the UK where inheritance tax on extensive assets was increased to 40 per cent in World War I and to as much as 75 per cent by the end of World War II in 1945. The countries with the highest levels of mobilisation unquestionably also had the greatest increases in inheritance taxes.

Whereas rates of inheritance tax were increased continuously during the first half of the 20th century on account of war, the exact opposite held true during the second half as most European governments began cutting inheritance taxes considerably. In fact, most European countries today apply a tax rate of no more than 15 per cent on their citizens’ biggest assets. In some countries, such as Sweden, Austria and Cyprus, inheritance tax has even been completely abolished in recent years. Only France, Spain and the United Kingdom continue to have inheritance tax rates of around 40 per cent.

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