Inheritance tax is among 20 taxes the government should abolish completely, the right wing Institute of Economic Affairs has said.
In a 254-page report, Taxation, Government Spending and Economic Growth, the think-tank called for an overhaul of the taxation system, replacing outdated taxes with a "radically reformed tax system".
The report, edited by Philip Booth and with contributions from experts including Rory Meakin, head of tax policy at the Taxpayers' Alliance, called on the government to cut 20 taxes and replace them with a flat-rate tax system that could raise approximately 20 per cent to 25 per cent of national income.
Under this proposed system, removing inheritance tax (IHT), stamp duties, capital gains tax and others would help individuals boost prosperity, while reducing the economic cost of high taxes on the overall UK economy.
The report said: "IHT should either be scrapped altogether or merged into income tax, depending on whether the system views bequests from the perspective of the heir or the deceased."
By consigning these 20 taxes to the dustbin and implementing a simpler system, the Institute of Economic Affairs (IEA) believes the government could raise between 20 to 25 per cent of national income.
The IEA's proposed simple tax system would comprise a flat-rate income tax set at 15 per cent of income above a personal allowance of around £10,000; distributed corporate profits would also be taxed at this rate.
VAT would be set at 12.5 per cent, with most exemptions abolished, while there would be a new housing consumption tax on rents and imputed rents to mimic VAT at 12.5 per cent.
Other measures include a new location land-value tax and fuel duty retained at roughly half the current rate.
According to the report: "If this package were implemented, static modelling would suggest that the poorest decile would enjoy tax cuts worth 26 per cent of gross income, followed by 19 per cent, 17 per cent and then 13 per cent for the fourth poorest decile, before further falling to 7 per cent for the fourth richest decile. The benefit of the proposed tax changes then rises slightly with income.
" Because lower taxes would lead to higher growth and because there would be a tax system that led to far fewer distortions of economic decisions, it is likely that employment, productivity and wage levels would rise considerably."
Taxes to be cut include:
- Inheritance tax
- Capital gains tax
- National insurance
- Corporation tax
- Council tax
- Business rates
- TV licence fee
- Apprenticeship levy
- Stamp duties
- Alcohol duties
- Tobacco duties
- Vehicle excise duty
- Air passenger duty
Commenting on the report, Mark Littlewood, director general of the Institute of Economic Affairs, said: "The economic evidence is clear: spending is far too high and the tax system is far too complicated.
"This new report provides a rigorous approach to discovering and documenting the size of the state and how government spending and regulation affect the wider economy.
“It provides a manifesto for how to create a lasting legacy of an economy with lower and simpler taxes that will boost prosperity for all.”