'Axe inheritance tax for new, fairer fee'

INHERITANCE tax should be scrapped and replaced with a new charge on gifts of more than £150,000, a think tank has recommended.

The Institute for Public Policy Research (IPPR) said there was a strong case for switching to a more "progressive" system, claiming it would tackle tax avoidance by the super rich as well as reducing wealth inequalities.

The IPPR, which has links to Labour, claimed the capital receipts tax would raise 1 billion more for Inland Revenue coffers than the inheritance tax system, which it says brings in 2.2bn. Under its controversial plans, the Inland Revenue would target the charge at cash and non-cash gifts, such as the bequest of family homes.

However, the idea sparked an angry reaction from Scottish business leaders, who said it could "stifle" enterprise.

CBI Scotland director Iain McMillan said: "The institute is calling for a tougher tax regime, when the UK already has a tax environment that's too high.

"We don't support moves to make the overall tax burden greater, as there's a danger we could stifle enterprise. The tax proposals would also almost certainly be made after the income had already been taxed."

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IPPR director Nick Pearce said the policy would lead to increased "social mobility" and would help fund free nursery education for the poorest two-thirds of families when their children reached the age of two.

He said: "Inheritance tax has historically played an important, progressive role in our tax system. But it now raises only 2.2bn from a dwindling number of estates. It is also highly unpopular, despite best attempts to defend it.

"There is no political prospect of radically increasing its scope and revenue, so it is time to give up on it. It should be abolished and replaced with a capital receipts tax on gifts. A capital receipts tax on gifts above 150,000 would raise 1bn more revenue than inheritance tax does now and would be a fairer means of increasing equality of opportunity.

"It would spread wealth better across the generations, by incentivising families to pass on their wealth to a greater number of children and grandchildren.

"The proceeds of a switch from inheritance tax to a capital receipts tax could be used to fund an expansion of free nursery education, a key driver of social mobility. This would be the best way of passing on opportunity, not privilege, from one generation to the next."

But Tory MSP Alex Johnstone claimed the policy was "typical left-wing lunacy".

He said: "Different forms of inheritance should be things we are trying to squeeze out of the system.The vast majority of property inherited is in the form of real estate and we should be encouraging people to invest in property, so that they can pass it on to their children.

"All forms of tax are a necessary evil and inherited property is something that should not be taxed any more than necessary.

"This policy is typical left- wing lunacy and is clearly a vendetta against those who focus on investing in the future of their families."