The government should either scrap the current inheritance tax (IHT) system or make significant changes to make it simpler and fairer, according to a new report from Grant Thornton.
The firm is calling for a full review after it found that far fewer people are liable to pay IHT than is commonly thought.
A survey of 400 homeowners with properties valued at more than £250,000 found a high level of confusion about who pays the tax with 62% believing they are liable when just 3% of UK estates were subject to IHT in 2010/11, according to HMRC.
Francesca Lagerberg, head of Tax at Grant Thornton, said: "We extrapolated the best features from similar tax regimes in other European countries that could be appropriate for the UK and came up with a number of options to improve the system. We then used the survey as a barometer to test how they may be viewed.
Some of the key findings were:
- 86% supported introducing an exemption for the main residence
- Replacing IHT with 'green taxes' was the most popular option (41%)
- A combination of progressive rates that vary by relationships to the deceased and the size of the inheritance was also popular (29%)
- 65% did not support an annual tax on wealth, mirroring the income tax regime
- 59% disagreed with replacing IHT with capital gains tax on death
- 67% did not want to increase the basic rate of income tax by 1p to raise £3.9bn
Lagerberg added: “If IHT is to be retained in some form, serious consideration should be given to introducing a main residence exemption. We would welcome a full review of the system by the government and the Office of Tax Simplification."
The IHT issue has been hotly debated on AccountingWEB over the years, but Labour declined to tackle the issue head on. In the run up to the Budget, it remains unclear whether the coalition will be any braver.
Lagerberg told AccountingWEB that she would be surprised to see anything in the upcoming Budget, and in fact during the remaining parliament. "This is a much longer-term project, and perhaps something we'll see during a second term of office," she said. "However, I do think this is a good time to have an informal debate and go back to basics."