The UK could raise more from inheritance tax if it implemented reforms based on methods used by other major economies, research from a prominent think-tank suggests.

The Future of Inheritance Tax report, produced by the cross-party Demos organisation, found that the 3.7 per cent of UK deaths that resulted in inheritance tax fees in 2020-2021 fell well below figures for nations such as South Korea (6.4 per cent) and Japan (9.3 per cent).

Among members of the G7 group, the UK only raised more than Canada (which has abandoned taxes on gifts and inheritance) and Italy, where the standard rate is 3 per cent; compared to the UK’s 40 per cent.

The Demos research also estimated that if the UK taxed the same proportion of inheritance and gifts as France, it would have raised £680m more in 2019-20 than the actual figure of £5.1bn.

Commenting on the potential of inheritance tax to raise funds for government projects, Dan Goss, senior researcher at Demos, said: “Inheritance is becoming increasingly more important and valuable. Doing the reforms now could make a big difference to the country without making much difference to most people.”

Possibilities could include reassessing the existing exemption for business property and replacing the current 40 per cent flat rate of inheritance tax with progressive rates of 20, 40 and 45 per cent.

Speaking to the Financial Times, Mr Goss added: “There are ways to make [inheritance tax] fairer and raise more money at the same time. France, South Korea and Japan all have marginal rates that go higher than 40 per cent for the top rate. If you can increase the top rate from 40 to 45 per cent, that could enable quite a big rate cut for smaller inheritances of say under £1m. That’s a key lesson.”

UK Inheritance tax receipts rose to £2.1 billion between April and June 2024, an increase of £83m on the same period last year.