The government should look to reform inheritance tax (IHT) and capital gains tax (CGT) with the aim of raising billions of pounds for the UK economy, according to the Resolution Foundation.

Its report on potential changes in the upcoming Autumn Budget stated that IHT could raise more revenue if its reliefs and exemptions were reviewed.

The Resolution Foundation argued that pension pots should be brought within scope of IHT, and that business and agricultural relief should be ended, or more restricted with caps and family business tests.

It stated that these changes could raise up to £2bn in new tax revenue.

Furthermore, the think tank said the government could end the “complicated” residence nil-rate band, potentially raising another £2bn.

However, if the government believed that these tax rises would be too large, the Resolution Foundation argued they could be coupled with lower IHT rate bands, recycling up to £2bn and delivering a “simpler and potentially better-perceived” tax.

The report also called for CGT to be a key focus in the Budget and said it would ideally involve significant reform of the tax system.

It suggested that marginal CGT rates for shares should be aligned with dividend tax rates, and that property capital gains should be taxes similarly to wages, with inflation-indexing needed in order to not over-tax capital gains.

“Pre-behavioural-response calculations suggest this fair combination – creating both winners and losers – would raise around £8bn per year,” the Resolution Foundation stated.

“A consistent approach to tax rates would also imply that those for rental income and basic-rate dividends should rise.

“In addition, there should be CGT exit charges when moving country, and the tax should certainly be applied at death (or rolled over), as these are currently ways to escape CGT entirely.”

The think tank’s report also identified pension tax as a possible area for reform, noting there were several options for reforming some of the “unfairness” in pension tax reliefs.

The simplest of these was to levy employer national insurance (NI) on employers’ pension contributions, it stated.

After reimbursing public sector employers for the additional costs, the Resolution Foundation calculated up to £12bn could be raised by ending this tax break.

Of this, £3bn could ideally be used to give full employee NI relief on employee pension contributions, the think tank said.

It argued that this combination could raise up to £9bn and would leave auto-enrolled workers with typical earnings marginally better off.

“It is clear that these changes have the potential to raise significant revenue (with these options totalling over £20bn a year),” the report said.

“There would no doubt be some vocal losers – as well as potential winners. But they are all changes that would make the tax system more neutral and efficient, rather than less.”

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