'Scrap IHT' Argues UK Think Tank

by Amanda Banks, Tax-News.com, London

30 December 2010

UK Inheritance Tax should be abolished and replaced with a new tax on gifts to individuals over GBP150,000, according to a new report from the Institute of Public Policy Research (IPPR).

The report argues that Inheritance Tax is no longer worth defending in the face of declining revenues and public hostility, and that there is a strong case for replacing it with a progressive Capital Receipts Tax on cash and non-cash gifts. This would stop tax avoidance by the super rich and reduce wealth inequalities in Britain, the IPPR has argued.

IPPR has called for the government to introduce a Capital Receipts Tax on gifts worth over GBP150,000 with a band system to tax more valuable gifts at higher rates. The IPPR proposes that:

• Gifts between GBP150,000 and GBP300,000 would be taxed at 20%;
• Gifts between GBP300,000 and GBP450,000 would be taxed at 30%;
• Gifts over GBP450,000 would be taxed at 40%; and,
• Gifts between married or civil partnered couples would be completely exempt.

The IPPR report argues that the tax reform would reduce wealth inequality, promote a wider distribution of wealth and remove the ability of the very wealthy to dispose of some of their assets during their lifetime.

Nick Pearce, the IPPR’s Director, said:

“Inheritance Tax has historically played an important progressive role in our tax system. But it now raises only GBP2.2bn 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 GBP150,000 would raise GBP1bn more revenue than Inheritance Tax does now and would be a fairer means of increasing equality of opportunity. It would spread wealth more effectively across the generations, by incentivising families to pass on their wealth to a greater number of children and grandchildren.”

Currently, Inheritance Tax is paid at a rate of 40% of the value of the estate above the GBP325,000 threshold.

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