The Treasury is looking to raise more money by tightening the rules around inheritance tax, it’s been reported.
Amid growing pressure regarding the state of the UK’s finances ahead of the autumn budget, the chancellor needs to address a blackhole left by Labour U-turns, higher borrowing and sluggish economic growth.
Economists have warned that Ms Reeves must raise taxes or tear up her flagship borrowing rules to fill a £50bn shortfall in public finances.
According to a report in The Guardian, the Treasury is now looking at options on inheritance tax like changing rules to restrict the gifting of money and assets
Under current rules, unlimited amounts of money and assets can be gifted to relatives and friends which avoids inheritance tax, provided that it is gifted at least seven years before the benefactor dies.
Money given less than three years before is taxed at the full inheritance tax rate of 40 per cent, while gifts given between seven and three years has a “taper relief” tax, which is between eight and 32 per cent.
The Guardian reports that the Treasury is considering a lifetime cap to limit the amount of money an individual can donate outside of inheritance tax, as well as reviewing rules around the taper rate.
“With so much wealth stored in assets like houses that have shot up in value, we have to find ways to better tap into the inheritances of those who can afford to contribute more,” a source told the newspaper.
“It’s hard to make sure these taxes don’t end up with loopholes that undermine their purpose. But we are trying to work out what revenue might be raised and how to ensure it’s a fair approach.”
However, it has been reported that no substantive talks at a senior level have occurred about inheritance tax, and no decisions have been made.
Reeves has already ruled out increases to income tax, national insurance and VAT, while inheritance tax brought in a record £6.7bn in 2022-2023.
However, recent analysis that showed wealthy investors are leaving the UK because of measures such as the abolition of non-dom status has caused nervousness.
A Treasury spokesperson said: “As set out in the plan for change, 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.”
