The Institute for Fiscal Studies (IFS) has called for reforms in inheritance tax that would raise £3 billion a year.
It argues that a number of exemptions to the tax(IHT) should be removed, which would result in people being able to pass on less of their wealth to loved ones.
These exemptions relate pension scheme tax relief, the ability to pass on agricultural property, and the ownership of some types of shares.
Some finance experts argue that removing the exemptions, which are mainly taken advantage of by the wealthy with more than £10m to pass on, would make IHT fairer.
The Treasury raked in £7 billion last year from the estates of Britons, but the IFS indicates it could rise significantly in future years.
The future of inheritance tax could be a key point of difference in a general election campaign with senior Conservatives arguing for its abolition.
Currently, people can pass on savings held in a defined contributions pension pot to their loved ones without any tax being applied if they die before the age of 75.
After this age, the recipients of the pension pot currently have to pay tax at their normal or marginal rate paid on income from work.
The IFS said changing the rules to impose tax on all of these pots that are passed on would raise £200mn in the present tax year.
But it said this would rise to as much as £1bn-£2bn a year in the coming decades.
The IFS said there is a strong case for removing or limiting the ability of people to pass on farmland without paying inheritance tax.
It suggested the government could choose to cap the relief at £500,000 per person. This would ensure that a couple could pass on a farm or business worth £1m without paying the tax
Under UK tax law, shares listed on Aim can be passed to people’s heirs tax free if they have been held for more than two years at the time of death.
The IFS said abolishing the Aim relief could raise at least £1.1bn in the current tax year, rising to £1.6bn in 2029-30.
These figures could be an underestimate, it added, as Aim relief is used heavily by trusts for which there are no direct statistics available.
These reliefs, which are used most heavily by the largest estates, have resulted in an effective tax rate of 17 per cent for estates worth £10mn or more — much lower than the headline tax rate of 40 per cent, the think- tank said.
David Sturrock, a senior research economist at the IFS, told the Financial Times: “Inheritance tax is littered with special reliefs and exemptions which make the tax unfair.”
Mubin Haq, chief executive of the Abrdn Financial Fairness Trust, said: “A key factor undermining support for taxes is the public perception that there are loopholes a small minority are taking advantage of.
“Clamping down on a few of the main exemptions could increase the amount raised through inheritance tax by over one-fifth.”
