Inheritance tax should be abolished and replaced with a new tax on gifts to individuals over £150,000, a leading think tank has urged.
The Institute for Public Policy Research (ippr) said there was a strong case for switching to a more “progressive” system, claiming it would tackle tax avoidance by the super rich as well as reducing wealth inequalities.
Its report suggested taxing bigger gifts – those over £450,000 – at higher amounts, up to a maximum of 40%, down to 20% for those worth between £150,000 and £300,000.
A capital receipts tax on gifts above £150,000 would raise £1 billion more revenue than inheritance tax does now, said the report.
Nick Pearce, ippr director, said: “Inheritance tax has historically played an important progressive role in our tax system, but it now raises only £2.2 billion from a dwindling number of estates.
“It is also highly unpopular, despite best attempts to defend it. There is no political prospect of radically increasing its scope and revenue, so it is time to give up on it. It should be abolished and replaced with a capital receipts tax on gifts.
“A capital receipts tax on gifts above £150,000 would raise £1 billion more revenue than inheritance tax does now and would be a fairer means of increasing equality of opportunity.
“It would spread wealth better across the generations, by incentivising families to pass on their wealth to a greater number of children and grandchildren.
“The proceeds of a switch from inheritance tax to a capital receipts tax could be used to fund an expansion of free nursery education, a key driver of social mobility. This would be the best way of passing on opportunity, not privilege, from one generation to the next.”