A national payment structure would cut variation around the country in state-funded services and support far more people to be cared for in their own homes.
At the moment, the amount primary care trusts (PCTs) in England spend on end-of-life care varies widely, from £186 per patient in one area to £6,213 in another.
Access to services including round-the-clock nursing care also depends on where people live.
Far more people die in hospital than wish to, and experts estimate that more than 90,000 people are not having their palliative care needs met.
The review, ordered by Health Secretary Andrew Lansley, proposes a “fair and transparent” funding system where the money is linked to the individual patient.
Under the scheme, people would receive an initial assessment of their needs, which would then be combined with other factors such as their age and capabilities.
This “needs classification system” would have 13 classes of funding for adults and 12 for children.
The funding would take account of things such as personal care needs, including help with washing and eating, the provision of round-the-clock nursing care to support people at home and a co-ordinator to help patients work out their state entitlements as well as access to local charitable services.
At present, some end-of-life care providers are paid regardless of how much work they do, offering poor value for money across the service, the review said.
Meanwhile, 97 per cent of hospices do not receive all the funding they need for the NHS services they provide, and some patients are victims of rationing towards the end of the NHS financial year.
The proposals would guarantee funding regardless of where patients live and whether they are in a care home, hospital or in their own home.
Experts say the move could reduce deaths in hospital by up to 60,000 a year by 2021, translating into savings of £180m annually.
Review chairman Thomas Hughes-Hallett, chief executive of Marie Curie Cancer Care, said: “No other country in the world has introduced such a system for both adults and children, so the step is both a bold and necessary one.”
Prof Sir Alan Craft, adviser to the review, said: “The Government must act on the recommendations contained in the review because evidence shows us that incentivising the provision of palliative care leads to better outcomes for patients, supports choice and is the most cost effective way of using NHS resources.
“We need to remove the barriers within the current system to enable this to happen.”
Around two thirds of adults would like to die at home but only 20 per cent do so, with 55 per cent dying in hospital.
The ageing population and the increased complexity of needs towards the end of life mean 90,000 more people than at present could be dying in institutions by 2030, the review said.
The chief executive of Macmillan Cancer Support, Ciaran Devane, said people wanted a choice over where to die.
“Twenty-four hour community nursing services are crucial to the delivery of choice and to the realisation of these ambitious recommendations. It will be up to the Government to ensure that these services are standard across the country.”
Simon Chapman, of the National Council for Palliative Care, said: “We only get one chance to get it right for dying people, which is why it must be a priority to ensure everyone who needs it can access palliative care round the clock.”
Care Services Minister Paul Burstow admitted the current system did not always deliver “good experiences” and the Government needed to do “much better”.
He said: “We have some excellent palliative care in this country but not everyone gets it.
“This report does give us a very good road map to transform the service.”