Chancellor Philip Hammond is looking into overhauling the "particularly complex" inheritance tax less than one year after the reforms by his predecessor George Osborne were brought in.
Hammond has written a letter to the Office of Tax Simplification to examine whether the system is "fit for purpose" since it came into affect in April 2017.
The chancellor also want the government quango to examine other areas surrounding the tax, including how the current gift rules interact with wider systems, whether the current framework causes distortions to the taxpayer and other decisions surrounding transfers, investments and other relevant transactions.
Under the current nil band rate system, people can pass on a family home free of tax going up to £175,000 by 2020-21.
The letter, dated 19 January, stated: "Inheritance tax, and the system within which it operates, is particularly complex and I would like to request that the OTS carry out a review. I would be most interested to hear any proposals you may have for simplification, to ensure that the system is fit for purpose and makes the experience of those who interact with it as smooth as possible."
Sarah Coles, an analyst at Hargreaves Lansdown, the investment broker, said: "Mr Hammond suggests the Office of Tax Simplification looks at whether the inheritance tax framework distorts decision-making; well, we can save them the time, because of course it does. The tax framework distorts people's behaviour and financial decisions, and inheritance tax is no exception."
She added: "Anyone who has ever wrestled with estate planning and inheritance tax can appreciate that the whole system can be a nightmare of complexity. The pension freedoms and the additional residence nil-rate band may have reduced IHT for many, but they have made things much more complicated rather than less, so it's about time someone took a big red pen to the myriad rules and regulations."
Sean McCann, chartered financial planner at NFU Mutual said: "This review is long overdue. Inheritance tax is fiendishly complex with many tax traps for families who don't take financial advice.
"A simpler system that people can easily understand is desperately needed. Even the most recent change, the Residence Nil Rate Band, introduced last April to help people pass on more of the value of their family home to their children and grandchildren, is riddled with ifs and buts."
Since the reforms were brought in, NFU Mutual said it had seen a surge in the amount of inheritance tax being paid, with more than £5.3bn taken from people's estates in 2017.