Institute for Fiscal Studies warns about accumulation of wealth by top 1% and says HMRC proposals to stop collecting data would create misleading picture

Proposals by the UK government to stop collecting information showing how the wealthy pass on their assets from one generation to another have been condemned by the Institute for Fiscal Studies, a leading tax and spending thinktank.

The IFS said Britain was in danger of allowing a misleading picture to emerge of its richest families, the top 1% whose wealth is at least £1.4m including the value of their home, that underestimates their wealth.

The warning follows a debate about the assets and influence of Britain’s top 1% of wealthy households following the leak of the Panama Papers, which revealed the offshore holdings of many rich individuals.

The IFS said calculations that failed to include the often complex web of trusts and jointly owned properties that the richest families use to avoid capital gains and inheritance tax would depress the overall measure of wealth.

It said that in 2005 the under-recording and differences in valuation of inherited estates increased the total from £3.4n to £4tn.

The inclusion of family trusts, jointly owned properties and small properties, which the IFS said were excluded from the standard published data, raised the total to £5tn – 46% higher than the total initially identified by officials.

A special issue of the IFS journal Fiscal Studies argues that the accumulation of wealth by the top 1% has meant the “younger generations are on course to have less wealth at each point in life than earlier generations”.

Adding to a welter of analysis that points to wealth – rather than incomes – providing the biggest split in society, it said inheritances will do little to even out the spread of wealth, leaving younger people from poorer families unable to acquire assets already in the hands of the top 1%.

The IFS said the acquisition of expensive houses, generous occupational pensions and trust funds in offshore havens have helped to cement the wealth of the top 1% for their children and grandchildren.

In response to moves by HMRC to stop gathering wealth data on the top 1%, the report said: “Wealth is a key determinant of wellbeing. It matters to households whether they have enough savings to see themselves through retirement and it matters for how they would respond to economic shocks and to fiscal and monetary policy. So understanding the distribution of wealth matters.

“So it is concerning that HMRC have consulted on discontinuing their publication of statistics on top shares of wealth, which are derived from data on bequests. These statistics have for decades given us the only, albeit imperfect, window into the wealth of the very richest,” they said.

A spokesman for HMRC said: “We will continue to publish statistics on wealth, but we have asked for views on whether HMRC should continue to produce wealth statistics in the way we currently do as the data we use is derived from inheritance tax information. Since 2006 the ONS have issued regular wealth surveys, but based on household assets. We want to streamline this.”

The report’s authors said ONS wealth surveys relied on feedback from households over a long period of time and many respondents had given up filling in survey forms by the time they retired. It also missed out on probate data that documents household wealth when a respondent is deceased.

“We have been learning a lot about the wealth distribution in recent years, especially following the introduction of the Wealth and Assets Survey. But this survey cannot tell us much about the top 1% who hold around 20% of household wealth,” they said.