Revamp all death taxes ‘to make the rich pay’

INHERITANCE tax is not fit for purpose because the super-rich can easily avoid it, a leading economist has said.

Paul Johnson, director of the Institute for Fiscal Studies, said millionaires dodge the levy by ensuring most of their wealth is not tied up in the value of their home.

Inheritance tax is payable at 40 per cent of bequests, on estates of more than £325,000, or £475,000 if children are the recipients.

But Mr Johnson said people leaving estates valued between £1million and £8million pay just 20 per cent, while those with £10million estates pay just 10 per cent. They do this by giving away assets more than seven years before they die.

The rich also make ‘clever’ use of trusts or buy land or assets not subject

‘Need system the public will support’

to the levy. Writing in The Times, Mr Johnson said: ‘Those with serious wealth find all sorts of ways of paying nothing like 40 per cent tax on bequests. On average, estates of between £1-8million attract 20 per cent tax; those around £10million pay 10 per cent.

Last week MPs called for inheritance tax to be scrapped and replaced with a flat levy on death of perhaps as low as 10 per cent on estates of more than £325,000, rising to 20 per cent for inheritances over £2million.

Mr Johnson said: ‘We need an inheritance or gifts tax system that is more effective and equitable, and commands public support.’ He said following the MPs’ suggestion on reform ‘may be the best we can do’.