‘Unpopular’ Inheritance Tax needs radical reform, think tank says
The UK’s ‘unpopular’ Inheritance Tax (IHT) regime is in dire need of radical reform, a prominent think tank has argued in a new report.
Earlier this week, the Resolution Foundation unveiled a report into intergenerational unfairness, which described IHT as ‘by far Britain’s most unpopular tax’ and suggested that it should be scrapped altogether to make way for a ‘fairer system’, The Guardian reports.
Under existing rules, IHT is incurred at a rate of 40 per cent on all estates valued at £325,000 or more at the point of death.
There are various ways families and individuals can reduce their overall IHT liability, yet up-to-date figures from HM Revenue & Customs (HMRC) suggest that the Treasury collected a record-breaking £5.2 billion in IHT receipts last year – and the tax is commonly regarded as ‘unfair’ across the media.
In its report, Resolution has called for the tax to be abolished in favour of a new “lifetime receipts tax.”
This system would enable beneficiaries to inherit a lump sum before incurring any tax. However, recipients of such bequests would later be taxed on an individual basis.
Resolution suggests that a ‘lifetime limit’ of £125,000 should be set for each individual, with tax levied at a low rate of 20 per cent on bequests of up to £500,000.
Any inheritances received by an individual above this rate would incur tax at a higher rate of 30 per cent, its report says.
Resolution claims that the proposed system has the potential to raise an additional £5 billion for the Treasury by 2020/21, arguing that the existing IHT system is ‘too easy’ for individuals to ‘unfairly’ avoid.
Adam Corlett, Analyst at the Resolution Foundation, said: “Inheritances are already worth over £100 billion a year, and their doubling over the next 20 years means they are going to play an even larger role in shaping British society.
“But the current system of Inheritance Tax is not fit to deal with this societal shift. It currently manages the uniquely bad twin feat of being both wildly unpopular and raising very little revenue.”
He noted that, at current, IHT only raises 77p for every £100 of taxation, yet is still commonly branded Britain’s ‘most unpopular’ tax.