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The Treasury is reportedly considering plans to raise Inheritance Tax at the Budget, as part of an attempt to raise £40bn and plug a hole in the public finances.
According to the BBC, the chancellor is considering multiple changes to the tax, which is charged at 40 per cent on the property, possessions and money of somebody who has died above a £325,000 threshold.
Any changes to Inheritance Tax would most significantly impact the wealthy, with the Institute for Fiscal Studies estimating that just 5 per cent of all deaths incurred the charge in 2022–23.
It raises about £7bn a year for the government and includes a number of reliefs, including exemptions for gifts given when a person is alive.
But a recent YouGov poll found just 27 per cent of the public would support a rise in inheritance tax, while 60 per cent oppose the idea.
Other polls have consistently shown Britons consider inheritance tax to be unfair.
Shadow chancellor Jeremy Hunt said it was people who had saved all their lives who would “pay the price” for the measure.
He said : “During the election we repeatedly warned that Labour’s sums didn’t add up and that they were planning to raise taxes. The real scandal is that despite planning these tax rises all along, they didn’t have the courage to admit it to the public during the election campaign. Unfortunately it looks like it will be people who have saved all their life to provide an inheritance to their family who will pay the price for Labour’s tax rises.”
Former Tory leader Iain Duncan-Smith echoed Mr Hunt’s concerns, telling The Independent: “The reality is that this will punish lots of quite ordinary people who have worked hard and want to put something aside for their families.
“Labour, who didn’t say a word about this in the general election, are going to raid those who try hard, while they take freebies - free tickets for concerts or extra money for clothing - and the people they are about to tax won’t get that. It’s just another tax on hard work.”
Money expert Martin Lewis warned that while the tax does “make the wealthiest (shoulder) a bigger brunt, in reality psychologically many, many more people than who will pay Inheritance Tax fear it”.
Under the current system, if a person gives away more than £325,000 in cash or gifts more than seven years before they die, recipients are not liable to pay inheritance tax.
The government is looking to raise up to £40bn from tax hikes and spending cuts, with some departments facing cuts of as much as 20 per cent, ahead of the Budget on 30 October.
John O’Connell, chief executive of the TaxPayers’ Alliance, said: “Taxpayers will be dismayed at reports that the chancellor intends to increase inheritance tax in the budget.“With the threshold already frozen, more and more estates are being hit by this vindictive levy which leaves grieving families with huge tax bills at the worst possible time. Rachel Reeves should immediately rule out raising the hated death tax.”
The PM and the chancellor were hit with backlash from Cabinet ministers this week over the proposals, with several ministers writing to the prime minister directly on Wednesday to express concern about the planned cuts.
At Tuesday’s Cabinet meeting, Ms Reeves told ministers that plans to fill a £22 billion hole in the public finances will just be enough to “keep public services standing still”.
Having promised “no return to austerity” under Labour, the chancellor is seeking the additional £18bn to fund a cash injection for the NHS and avoid real terms cuts to some key departments.
Downing Street warned that “tough decisions” would have to be made, saying that “not every department will be able to do everything they want to”.
The prime minister’s official spokesman confirmed Sir Keir and Ms Reeves have agreed on the “major measures” of the Budget, including the “spending envelope” that sets out limits for individual Whitehall departments.
Other tax rises are being considered by the Treasury, including an increase to the employer rate of national insurance – something Downing Street has repeatedly refused to rule out, despite it being seen as a breach of Labour’s manifesto.
A 1p increase to the rate could raise up to £17bn, IFS director Paul Johnson estimated.
Labour’s manifesto promised no increase in taxes on working people, saying this is “why we will not increase national insurance.”
But ministers have argued the pledge only applied to the employee rate of national insurance, which sits at 8 per cent, and not the 13.8 per cent employer contribution rate.
Meanwhile, capital gains on profits from the sale of shares, which currently is set at 20 per cent, is likely to rise by several percentage points, The Times reported, a move which would raise billions.
A Treasury spokesperson said: “We do not comment on speculation around tax changes outside of fiscal events.”
