Proposal to tax rich at 50% rate

The left-of-centre group says the plan would combat inequality

The super-rich should be hit with a 50% inheritance tax to allow cuts for the middle classes, a think tank has said.

The Institute for Public Policy Research (IPPR) said the chancellor could raise £147m a year and cut death duty for up to 90% of people.

It said estates of more than £808,000 could be taxed under a banded system.

The left-of-centre organisation said Gordon Brown should use the extra cash to help Britain's poorest youngsters through the Child Trust Fund.

A new inheritance tax structure would allow the amount invested on behalf of every child to be raised from £250 to £400 and double that, to £800, for low income families, it said in a report.

'Worrying inequality'

IPPR researcher Dominic Maxwell said the proposals would counter a "worrying" rise in inequality.

The inheritance tax threshold would remain at £263,000 after debts and other exemptions, under the IPPR proposals.

Above that, the current 40% rate would be replaced by three bands.

Inheritance from £263,000 to £288,000 would be taxed at 22% marginal, increasing to 40% from £288,000 to £763,000.

The 50% rate would apply to inheritance over £763,000 so that only the 13% of estates over £808,000 would lose out.

Government can and should seek to moderate wider wealth inequalities Dominic Maxwell IPPR

Downing Street has distanced itself from the Think tank's recommendations.

A spokesman for Number 10 said: "Obviously the IPPR make proposals and issue reports from time to time.

"Ten Downing Street played no part in this work."

And a Treasury spokesman said: "Policy on inheritance tax and any other fiscal measure is set by the Chancellor's budgets, not by the IPPR or any other Think tank".

Between 1991 and 2001 wealth held by the elite increased from 47% to 56% and a third of Britain's riches are owned by 2% of the population, according to the IPPR.

"As well as being fairer to those who inherit assets, this reform would also benefit those born with nothing, through a beefed-up Child Trust Fund," said Mr Maxwell.

"Inheritance tax reform is only part of the response needed but it would certainly help to protect the principle that government can and should seek to moderate wider wealth inequalities."

According to a Labour spokesman the report will be studied carefully, but he added: "That doesn't mean we are going to incorporate the recommendations into the manifesto."

Open debate

Shadow work and pensions secretary David Willetts claimed the report revealed Labour had let "the cat out of the bag".

"They are now openly debating how much extra tax they have to raise if they win the next election," he said.

"If they introduce a 50% band for inheritance tax, there will be nothing to stop them spreading it more widely and even applying it to income tax as well."

He said Tory figures showed that the number of towns where the average price house brings homeowners in to the inheritance tax band has "gone up from one in 1997 to 86 today".

"The Labour think-tank appear to recognise the force of our argument by proposing a new 22% band but it is only on a tiny fraction of the value of the house," Mr Willetts said.