Inheritance tax in the UK should be scrapped and replaced with a lifetime tax on gifts, according to a commission whose membership includes the Archbishop of Canterbury.
Backed by economists, business leaders and trade unions, as well as Justin Welby, the Commission for Economic Justice warns that – a decade after the financial crash – the time for tinkering is over.
The report found wealth was distributed much more unequally than income, with the wealthiest 10% of households owning five times more than the entire bottom half of all households combined.
The report calls for inheritance tax to be replaced by a gifts tax. It would allow individuals to receive a total of £125,000 over their lifetime tax-free but any further gifts would be liable to income tax.
Currently estates are only taxed after £325,000 – or £650,000 for a couple. But the IPPR report warns that many families are able to avoid the tax by exploiting rules that allow gifts to go tax-free after seven years.
The commission predicted this could raise an additional £9bn a year.
The Citizens Wealth Fund would be funded with £90bn income from the new ‘lifetime gifts tax’ over ten years, £57bn in proceeds of planned state asset sales such as RBS, income from the £11bn Crown Estate and other sources.
It would give 25-year-olds a £10,000 ‘universal minimum inheritance’ to get on the housing ladder or start a business. It could also provide all citizens with a small annual dividend, according to the Archbishop.
Multi-nationals accused of avoiding tax would be hit with an “Alternative Minimum Corporation Tax” that would be based on their estimated profits in the UK.
The report says: “It should be applied when a firm declared profits below a certain percentage of its global profits for more than five years.”
“The tax system should do more to reduce wealth inequality, particularly by taxing the unearned ‘rents’ from wealth which do not contribute to economic output.”
The commission also found land and property were under-taxed in the UK, and it called for a new land value tax.
International Investment’s latest ezine, a special report devoted to the issues surrounding IHT, is available here.