Rachel Reeves has been urged to scrap Britain’s “punishing” inheritance tax after new research named it among the harshest in the world. Inheritance tax is set at 40% on all assets above a certain threshold for Britons, regardless of who they are left to. Unlike other developed nations, the UK doesn’t provide lower rates or exemptions for people passing their wealth down to their children, as opposed to friends or other relatives.

This detail means the levy has a “far more punishing” impact on hardworking families than it first appears, and risks stymying the country’s economic growth, a new report by the Institute for Economic Affairs (IEA) think tank argues. Comparing the rates on assets left to adult children, the IEA found that the UK has the fifth highest inheritance tax in the Organisation for Economic Co-operation and Development (OECD), behind only the US, Japan, Korea and France.

Lord Frost, director general of the think tank and former Tory Brexit minister, has urged the Chancellor to abolish the levy if she’s serious about “boosting growth and supporting families”.

“Nearly half of OECD countries do not tax what parents leave their children at all,” he told The Telegraph.

“Inheritance tax raises relatively little, costs a great deal to administer, and distorts the decisions of exactly the kind of wealth creators and entrepreneurs we are desperate to attract and retain.”

While UK inheritance tax rules do not make exemptions depending on who the money is being handed to, Britons can pass on up to £325,000 of their estate tax-free, under the nil-rate band allowance.

Inheriting children or grandchildren can also claim an additional £175,000 tax-free under the allowance, which has been frozen since 2009.

If a full abolition of the levy is off the table, the IEA has alternatively called for an increase of the inheritance tax threshold to £2 million or above, or a cut of the headline rate to 20%.

A spokesperson for the Treasury said: “Fewer than 10% of estates are forecast to pay inheritance tax over the next five years. Individuals will still be able to pass on up to £500,000 tax-free each and up to £1 million in some situations.

“The fair and necessary decisions we made at this Budget and the last mean we can deliver on the country’s priorities – cutting waiting lists, cutting debt and borrowing and cutting the cost of living.”