Imagine this. The government commissions an official report into a high-profile tax. A comprehensive report comes back that is about as damning as you can get: branding the structure as unfair, crucial allowances as outdated, and calling for an overhaul.

Six years later, absolutely nothing has been done to sort that tax out.

Except you don’t have to imagine this scenario, because it is what actually happened with inheritance tax.

This epitomises the abject failure of the British tax system over the past two decades.

Successive Chancellors have known about bad taxes that are damaging public trust and instead of fixing them have chosen not only to ignore the problem but often to actively make it worse.

The Tories made a lot of noise about improving the burden of inheritance tax and even hinted at axing it. Beyond George Osborne's tinkering with the clunky own residence exemption, they instead ignored the problem. 

Conservative chancellors were happy to sit back and allow inheritance tax to increasingly become a tax raid on the affluent middle classes rather than the levy on the very wealthy it was intended to be. Now we start in a bad place when faced with a Labour party seemingly keen to tax wealth.

Back in January 2018, then Chancellor Philip Hammond asked the Office of Tax Simplification to carry out a review of inheritance tax with the aim of simplifying it for both the government and taxpayers.

The OTS came back with the first part of its review in late 2018, which was followed up by the final part in 2019.

As I mentioned above, the findings of the review were far from complimentary.

It painted a picture of a total mess of a tax, which despite only being paid by a small percentage of estates manages to create an administration nightmare for many more whose loved ones have died, cementing its reputation as Britain’s most hated tax.

In November 2018, the OTS said: ‘Although inheritance tax is payable on less than 5 per cent of the estates of the 570,000 people who die in the UK each year, around half of the families have to fill in the forms.

‘Many also told us that their relative had worried about inheritance tax during their lifetime, even though it was not going to affect them.’

Inheritance tax is charged at 40 per cent on estates above the individual nil rate band of £325,000, with an extra £175,000 allowed tax-free for those passing their own home on to direct descendants.

You can pass on your unused allowances to a spouse, meaning married couples and civil partners have a combined allowance of £1million.

A cornerstone of inheritance tax is limiting how much people whose estates would be liable can give away before gifts get caught in the net of death duties.

Once they breach these gift limits, they must survive for another seven years for the gift to become inheritance tax-free.

The OTS highlighted in detail how outdated these limits are and that they had not been raised since inheritance tax was introduced in its current form in 1986.

The frozen main gifting limit means you can give away just £3,000 per year before ending up with a potential inheritance tax liability.

An exemption applies for weddings, whereby a parent can give £5,000 or a grandparent £2,500.

Alternatively, you can make unlimited small gifts worth up to £250 but you can only make one per individual recipient.

There is an IHT exemption for making regular gifts out of surplus income, but this is a murky area and you can’t use it to give your savings away.

The gifting rules create some truly bizarre potential scenarios for anyone unlucky enough to die within seven years.

• Your estate could end up liable for inheritance tax if you:
• Buy your 18-year-old a second hand £5,000 Ford Fiesta
• Split your daughter or son’s wedding (the average cost of which is claimed to be £20,000)
• Have already given away your £3,000 this year and buy your grandchild a school laptop
• Take the family on a big holiday

In reality, I imagine these things happen all the time and fall through the cracks without any inheritance tax being charged, even if the donor dies within seven years.

Yet, theoretically, the taxman could pursue an estate over the inheritance tax threshold for 40 per cent on any of the above.

One area where people are at greater risk of an IHT bill is if the Bank of Mum and Dad - or Gran and Grandad - helped with a house deposit, often running into tens of thousands of pounds.

One of the most eye-catching elements of the OTS report was that despite all these restrictive rules, the really rich pay a lower effective rate of inheritance tax than the merely rich.

The standard exemptions of up to £1million per couple mean that the effective overall rate of inheritance tax on estates (the amount paid vs their value) is far lower than the headline 40 per cent rate.

As people get caught in the IHT net, the effective rate steadily rises, from 5 per cent at the low end, to about 20 per cent for £2 to £3million estates, where it remains until about £7million.

But after that it starts dropping and by the time you get to £10million-plus estates the effective inheritance tax rate is 10 per cent.

This is where having deep enough pockets to do some serious inheritance tax planning really pays off and exemptions such as passing on businesses and agricultural land start to be used by the wealthy, rather than the entrepreneurs or farmers they were designed for.

In its second report, the OTS made 11 recommendations. Most important for the majority of people were those around lifetime gifts, where a new simpler overall personal gifts allowance at a higher level was recommended, along with reducing the seven-year rule to five.

My personal view is that inheritance tax could be even simpler, just cut the IHT rate to a far more palatable 20 per cent and the tax take may stay the same as dodging it becomes less worthwhile.

This is Money readers disagree, in a poll where 5,321 voted, just 11 per cent favoured cutting the rate, compared to 26 per cent who wanted the threshold raised and 49 per cent who said abolish it altogether.

Whatever your view on inheritance tax, you would think that after such a damning report on a tax that punches well above its weight in terms of attention and disruption, something would have been done.

Instead, the Conservatives sat on the OTS report for so long that it managed to outlast the Office for Tax Simplification itself, which was scrapped by Kwasi Kwarteng and Liz Truss.

As with many of our problematic tax traps, it’s a shame the Tories never acted. 

Especially, as for some bizarre reason our new Labour government seems to want to crack down on economic optimism with some tax rises.

Perhaps we will get a surprise in October. Maybe Rachel Reeves won’t stage a dismal inheritance tax raid that only makes a bad tax worse, but will instead increase the gifting allowances to match modern day life and make it simpler and better.

I’m not sure I can see that happening though.