Chancellor Rachel Reeves is reportedly exploring changes to inheritance tax – such as tightening the rules around gifting – as she battles to plug a hole in the public finances
Chancellor Rachel Reeves is reportedly exploring changes to inheritance tax as she battles to plug a hole in the public finances.
Officials are said to be examining whether tightening rules around the gifting of money and assets before someone dies could help address the UK’s multi-billion-pound shortfall between revenue and spending. A potential cap on lifetime gifts to limit the value of donations is among the moves being considered, according to the Guardian. No decisions have yet been taken.
Grilled by Sky News on the reports, Home Office minister Dame Diana Johnson failed to rule out changes to inheritance tax, saying people would have to wait until Ms Reeves’s autumn Budget for confirmation of her plans. It comes as Rachel Reeves gave an update on wealth tax calls as pressure mounts to target the richest Brits
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Dame Diana said: “I’m not the Chancellor, and she’s obviously going to announce her Budget in the autumn, and will make her announcements there. But what I’m really clear about is that the decisions that she’s already taken have allowed, for example, for me, as the policing minister, to make sure that we’re getting those 3,000 additional police officers this year into our communities to keep people safe. So I think the Budget will come in October, and we’ll hear that what she wants to do.”
Ms Reeves has refused to rule out future tax rises as she grapples with a gaping hole in the public finances following recent Government U-turns on cuts to disability benefits and the winter fuel allowance, as well as the impact of Donald Trump’s tariffs. Labour is constrained by how it can raise money after pledging in the election not to hike income tax, national insurance or VAT.
The Chancellor has faced calls from former Labour leader Neil Kinnock to slap VAT on private healthcare to raise billions for the NHS, while Labour MPs have demanded she introduce a wealth tax to raise cash.
Currently, inheritance tax – charged at a standard rate of 40% – only applies to wealthy people who have an estate worth £325,000. This rises to £500,000 if a home is given to a child or a grandchild – meaning a couple have a combined tax-free property limit of £1million when they die. According to Government figures, just 3.7% of all deaths in 2020-21 resulted in an inheritance tax charge.
Under current UK rules, gifts made more than seven years before a person’s death are exempt from inheritance tax. Gifts made between three and seven years prior are taxed on a sliding scale, depending on their value and the total estate.
A Treasury spokesperson said: “The best way to strengthen public finances is by growing the economy – which is our focus. Changes to tax and spend policy are not the only ways of doing this, as seen with our planning reforms, which are expected to grow the economy by £6.8bn and cut borrowing by £3.4bn.
“We are committed to keeping taxes for working people as low as possible, which is why at last autumn’s budget, we protected working people’s payslips and kept our promise not to raise the basic, higher or additional rates of income tax, employee national insurance or VAT.”
Last week, National Institute of Economic and Social Research (Niesr) predicted Rachel Reeves is now set for a £41.2billion shortfall on her “stability rule” in 2029-30 and has been left with an “impossible trilemma” of trying to meet her fiscal rules while fulfilling spending commitments and upholding a manifesto pledge not to raise taxes. She will need to raise taxes or cut spending in the autumn budget to plug the gap, Niesr cautioned.
Business Secretary Jonathan Reynolds last month dismissed the idea of a wealth tax, hitting out at “daft” demands for a “magic wealth tax” to plug holes in the public finances.
“This Labour Government has increased taxes on wealth as opposed to income – the taxes on private jets, private schools, changes through inheritance tax, capital gains tax,” he told GB News.
“But the idea there’s a magic wealth tax, some sort of levy… that doesn’t exist anywhere in the world. Switzerland has a levy but they don’t have capital gains or inheritance tax. There’s no kind of magic (tax). We’re not going to do anything daft like that.”
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