Inheritance tax is set to rise in the upcoming Budget as Chancellor Reeves plans to target the well-off, according to reports. The Treasury is considering adjustments to the tax in order to raise £40bn and address financial gaps. Currently, Inheritance Tax is set at 40 per cent on assets exceeding a £325,000 threshold.
The proposed changes would predominantly affect the wealthy, with statistics showing that only 5 per cent of all deaths incurred the Inheritance Tax charge in 2022–23. This tax generates approximately £7bn annually for the government and includes exemptions such as gifts given during one’s lifetime. For instance, gifts exceeding £325,000 made more than seven years before death are not subject to Inheritance Tax.
The details of the specific changes to Inheritance Tax remain undisclosed ahead of the Budget scheduled for 30 October. The government aims to raise up to £40bn through a combination of tax increases and spending cuts, with possible reductions of up to 20 per cent in some departments.
Cabinet ministers have expressed concerns over the proposed cuts, emphasising the need to address a £22 billion deficit in public finances. Chancellor Reeves mentioned that bridging this financial gap would merely maintain current public services. Despite earlier promises of no return to austerity under Labour, the government seeks an additional £18bn to provide funding for the NHS and prevent cuts to key departments.
The Prime Minister and the Chancellor have faced criticism from various ministers regarding the planned measures. Tough decisions are expected, as not all departments will have the freedom to fulfil their objectives. Further tax hikes, including a potential rise in the national insurance employer rate and an increase in capital gains tax, are being considered to generate additional revenue.
The government remains tight-lipped about the specifics of these tax changes until the Budget announcement. Labour’s manifesto pledge against tax increases on working individuals could be challenged, especially concerning the national insurance rates. The evolving tax landscape aims to address fiscal challenges and secure financial stability for public services.