Death duty ‘too easy to dodge and should be scrapped’

INHERITANCE tax should be scrapped and replaced by a system that is fairer and harder to avoid, an economic think tank has said.

Death duty is a “failed” and “unfixable” tax that does not keep up with modern society, according to the Resolution Foundation.

Adam Corlett, senior economic analyst at the think tank, said that inheritance tax “manages the uniquely bad twin feat of being both wildly unpopular and raising very little revenue”.

The taxman collected £5.2 billion from inheritance tax in 2017-18, a 53per cent rise in four years, figures from HM Revenue & Customs show.

Despite the increase, IHT still only amounts to 77p of every £100 raised nationally, and just four per cent of estates are subject to it, the Resolution Foundation said.

Mr Corlett said: “Rather than tweak our failed inheritance tax system, it should be scrapped altogether.”

The think tank has called for the tax to be replaced with a “lifetime receipts tax”, which would typically have lower tax-free thresholds but also lower rates.

At the moment, a deceased’s estate is taxed at 40 per cent if it is above £325,000 in value. It rises to £850,000 for couples who are married or in civil partnerships.

Homes passed on to children or grandchildren have a higher tax-free threshold of £450,000.

Under the proposed new system, each descendant would get their own tax-free allowance of up to £125,000. The tax would be charged at 20 per cent on the amount the individual inherits between £125,000 to £500,000 and 30 per cent above that.

This means that an inheritance split between four children would have a tax-free threshold of up to £500,000 – each child would have £125,000 taxfree and pay lower rates above that.

The lifetime receipts tax would also apply to gifts above £3,000 a year.