Independent think tank the Resolution Foundation has suggested that inheritance tax (IHT) should be scrapped and replaced with a tax on those receiving the money.
According to the Foundation, the current IHT system is unfair and easy for the wealthiest individuals to avoid. Therefore, instead of taxing the estates of the dead, the think tank has suggested that those who receive the inheritance should be taxed, with each beneficiary having their own tax-free allowance. As its report says, this would allow families to “spread their wealth”.
At the moment, IHT is charged on the value of an individual’s estate after their death. Their beneficiaries must pay 40 per cent of the entire value of this estate over a certain threshold – £325,000 for an individual and £650,000 for couples.
However, according to the Resolution Foundation, currently four per cent of estates are subject to it, as the wealthiest people can get away with paying less by using a number of loopholes.
These include giving assets to children more than seven years before death and tying assets up in business and agricultural land, which carry special relief rates.
What’s worse is that people only tend to be left an inheritance at an average age of 61, often when they have amassed their own money rather than when they could most have benefitted from it.
The think tank therefore suggests that individuals should be taxed on the wealth they receive over their lifetime and they should be given a £125,000 tax-free allowance, followed by a 20p rate up to £500,000 and 30p after that.
This ‘Lifetime Tax Receipts Tax’ would mean that there would be no advantage of passing on wealth long before death or after it, and it would make more people pay but they would be paying less each. They estimate that this would raise £11 billion in 2020/21, compared with the projected £6 billion under the current system.