A lifetime gift tax could be the solution to increasing homeownership inequality

In the 1960s the sociologist Robert Merton identified something he described as the "Matthew effect".

Merton was drawing on the observation by Jesus in the Gospel of Matthew that, "for whosoever hath, to him shall be given, and he shall have more abundance". In other words, there's a natural tendency for the rich to get richer.

Anyone looking for evidence of this Matthew effect in our own economy will find it in residential property ownership.

The Resolution Foundation think tank has produced new research showing that those whose parents are homeowners are considerably more likely by the age of 30 to be homeowners themselves.

That's probably not surprising to many readers. The existence of the "Bank of Mum and Dad", where wealthier parents give their children money to enable them to get on the housing ladder, is no secret, and we've had estimates from financial firms about just how big these annual financial transfers are.

But the Resolution Foundation's latest work, nonetheless, adds value because it has managed to quantify, through a smart use of longitudinal survey evidence, just how closely an individual's chances of owning by the end of their third decade is associated with his or her parents' homeownership status.

Homeownership rates for those with parental property wealth are 25 per cent - almost three times the rate of those without parental property wealth.

And the link seems to have become more pronounced over the past two decades. In the mid-1990s and early 2000s the homeownership rate of those with property-owning parents was only twice as high as that of others.

The Resolution Foundation work also suggests that as a predictor of homeownership rates by age 30, parental homeownership is more important than education, region of residence, whether someone is in a couple, and is now even catching up with young people's salaries.

"If current trends continue, it is likely that whether or not someone is able to own their own home will be increasingly decided by who their parents are," the think tank says.

Another fact that the report brings out is that the property-ownership advantage often comes well before formal inheritance, or when the older homeowners may leave their own property assets to their children in their will. Parents' property wealth, their illiquid assets, seems to get monetised for gifts or soft loans to children so they can accumulate bricks and mortar assets of their own.

This has policy implications for those who want to slow down the Matthew effect in our economy, for those politicians who think that intergenerational cascades of wealth and economic advantage are socially toxic.

The Resolution study makes it clear that the current inheritance tax system (even if the threshold were lowered to a sensible level and all the many loopholes were ended) would be inadequate for tackling the core kind of intergenerational asset transfers we're increasingly seeing.

The Institute for Fiscal Studies has long championed the replacement of the inheritance tax with a "lifetime gifts tax". The Resolution Foundation itself, more recently, has backed such a reform.

The advantage of such a levy is that, unlike the current inheritance tax, it would capture the financial helping hand given to children to buy homes.

But how would a gift tax work? Would every £ 10 gift voucher from grandma be taxable? How would loans be treated? Carl Emmerson of the IFS points out that there is nothing insurmountable about the challenge of designing a new system. Recipients would inform HMRC of gifts received from a single donor above a certain value each year.

Emmerson suggests a minimum lifetime allowance for each individual, and anything gifted to them above that threshold becomes taxable at a progressive rate. The terms of soft loans could be compared to commercial lending rates and the tax levied on the difference (with the full tax being payable if the loan is written off).

It would be up to the government to decide the allowances and rates, something that they would hopefully do guided by expert advice.

But the principle is sound. And we can also be reasonably confident about its overall impact: it would throw sand in the gears of one of the biggest motors of intergenerational wealth inequality.

It would help keep Matthew shackled.