Brits have been warned that Rachel Reeves may be eyeing changes to the « most resented » tax. Nigel Green, chief executive of deVere Group, said inheritance tax (IHT) is the UK’s « most loathed » levy, but the Chancellor may need to revisit it to raise more billions for the Treasury.
It comes as she needs to fill a reported £50billion hole in the public finances following Government U-turns, such as the collapse of its welfare reform bill. It is feared that Ms Reeves will turn to the middle classes to raise the required cash, « exploring cuts to thresholds and tougher rules on lifetime gifts ». Currently, Mr Green explained, gifts made more than seven years before death are usually exempt from inheritance tax.
Those made between three and seven years before death are taxed on a sliding scale, with the rate rising the closer the gift is to death.
He added that reports suggest that the Treasury is reviewing these provisions and considering changes to the residence nil rate band, which was originally intended to shield family homes from IHT.
“Inheritance tax is the most resented tax we encounter – and for good reason, » the finance guru said.
“It’s viewed as a double taxation on assets that have already been earned, saved, and taxed over a lifetime.
« With the Treasury facing intense pressure to raise revenue, it appears almost inevitable that this tax will be targeted again.”
“The belief that inheritance tax only affects the ultra-wealthy is no longer accurate,” he added.
“Rising property prices, frozen thresholds, and the steady erosion of reliefs mean many middle-income households – particularly in areas with high property values – are now caught.
« Any tightening of the rules will extend this to thousands more.”
Mr Green also highlighted that « Labour’s ‘Stability Rule’ requires all day-to-day government spending to be funded from tax revenues by 2030 ».
“It is politically simpler to change the structure of inheritance tax than to touch headline rates,” he said.
“But such changes can have a profound impact on people who have worked for decades to build up assets to pass on. The consequences will be significant.”
Labour’s 2024 manifesto pledged not to raise taxes on “working people”, but Darren Jones, Ms Reeves’ deputy, has defined the term as “anyone that gets a payslip”.
Mr Green thinks this broad definition gives the Government scope to argue that tightening inheritance tax does not breach the commitment, even if it impacts households well below the highest wealth brackets.
Experts have predicted that IHT receipts could hit £9.5billion before the end of the decade, according to Sargeant Partnership.
“Inheritance tax is one of the most politically useful levers available to any government looking to raise significant sums without touching headline tax rates,” he said.
“Its scope is widening, and it is likely to be relied upon more heavily in the future.”
Receipts have already surged to £7.5billion in the 12 months to June, compared with £6.7billion in 2022/23, and more than double the amount collected a decade ago.
