The Conservative party would be better off scrapping inheritance tax altogether rather than increasing the threshold to £1m, the Institute for Fiscal Studies has suggested.
The thinktank said raising the threshold from its current level of £325,000 would mean only a small number of rich families would be obliged to pay the tax, raising very little revenue for the Treasury.
"In these circumstances more radical change should surely be considered. One option would be simply to abolish the tax," said the institute's Stuart Adam and Carl Emmerson in a report.
"It would simplify the tax system and get rid of an ineffective and unpopular tax which can be criticised in any case as a source of double taxation in cases where bequests are financed from earnings that have already been taxed."
David Cameron suggested last week that his party might revive its abandoned pledge to raise the threshold to £1m. Inheritance tax is charged at 40% on estates valued at above £325,000, with agricultural land, some business assets and bequests to UK registered charities exempt.
At the current level, the Treasury will raise about £3.5bn from the tax in 2013-14 according to forecasts from the Office for Budget Responsibility, rising to £5.8bn in 2018-19.
By the thinktank's calculations, Treasury receipts from inheritance tax would have been just £800m in 2010-11 had the threshold been £1m, 70% lower than the £2.6bn actually generated. It would have reduced the numbers paying the tax by three-quarters from 2.8% of deaths to 0.7% of deaths.
The institute said the benefits of a rise in the threshold would not be equally shared across the country, with the main beneficiaries being those in London and south-east where inheritances tend to be larger than other parts of the UK.
It said that as well as abolishing the tax, the Conservatives could consider changes such as taxing what each recipient gets, rather than what each donor passes on.
Another option would be to remove or reduce those assets which are currently exempt from inheritance tax.
"Whatever happens inheritance tax should not live on in its current form," the thinktank said.
theguardian.com
The thinktank said raising the threshold from its current level of £325,000 would mean only a small number of rich families would be obliged to pay the tax, raising very little revenue for the Treasury.
"In these circumstances more radical change should surely be considered. One option would be simply to abolish the tax," said the institute's Stuart Adam and Carl Emmerson in a report.
"It would simplify the tax system and get rid of an ineffective and unpopular tax which can be criticised in any case as a source of double taxation in cases where bequests are financed from earnings that have already been taxed."
David Cameron suggested last week that his party might revive its abandoned pledge to raise the threshold to £1m. Inheritance tax is charged at 40% on estates valued at above £325,000, with agricultural land, some business assets and bequests to UK registered charities exempt.
At the current level, the Treasury will raise about £3.5bn from the tax in 2013-14 according to forecasts from the Office for Budget Responsibility, rising to £5.8bn in 2018-19.
By the thinktank's calculations, Treasury receipts from inheritance tax would have been just £800m in 2010-11 had the threshold been £1m, 70% lower than the £2.6bn actually generated. It would have reduced the numbers paying the tax by three-quarters from 2.8% of deaths to 0.7% of deaths.
The institute said the benefits of a rise in the threshold would not be equally shared across the country, with the main beneficiaries being those in London and south-east where inheritances tend to be larger than other parts of the UK.
It said that as well as abolishing the tax, the Conservatives could consider changes such as taxing what each recipient gets, rather than what each donor passes on.
Another option would be to remove or reduce those assets which are currently exempt from inheritance tax.
"Whatever happens inheritance tax should not live on in its current form," the thinktank said.
theguardian.com
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