Putting the case for reform of the Inheritance Tax system, the left-leaning Institute for Public Policy Research has proposed a banding system which will ease the burden for the middle class whilst making the wealthy pay more in tax.
The report by the IPPR, whose former director is now head of policy at Number 10, argues that the easiest way to make inheritance tax fairer is to introduce a system similar to income tax, with a base rate of 22% and higher bands of 40% and 50%.
By doing this, the IPPR estimates that 87% of estates would pay less in tax, whilst the government would receive an additional £147 million in revenues.
The present system levies a flat rate of 40% on the value of estates worth more than £263,000. The ICCR’s proposal would introduce a top rate of 50% on estates worth more than £763,000.
“A fairer inheritance tax would see the very wealthy, who are comfortably over the threshold, pay more, whilst the vast majority of families that are currently taxed would pay less,” noted IPPR researcher, Dominic Maxwell.
He continued: “The past decade has seen a worrying rise in wealth inequality. Inheritance tax reform is only part of the response needed but it would certainly help to protect the principle that government can and should seek to moderate wider wealth inequalities.”
According to the Daily Telegraph, the scheme is currently being prepared for inclusion in the Labour Party’s election manifesto.
Critics of the idea warn that a top rate of 50% sets a dangerous precedent that could spread to the income tax system.
“If they introduce a 50% band for inheritance tax, there will be nothing to stop them spreading it more widely,” David Willets, shadow work and pensions secretary, told the BBC.
The Treasury however, was dismissive of such speculation. "Policy on inheritance tax and any other fiscal measure is set by the Chancellor's budgets, not by the IPPR or any other think tank," a spokesman was quoted as saying.
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