Inheritance tax: Reeves could change thresholds and crack down on gift rules
Rachel Reeves is exploring measures to extract more revenue from inheritance tax (IHT) ahead of the Autumn Budget, as she looks to plug a massive fiscal blackhole without breaking Labour election promises on tax.
According to a report in The Guardian, the Treasury is looking into changes to thresholds as well as tightening the rules around using gifts of money to get around IHT.
The unpopular levy on estates has been consistently exploited as a means of taking in additional revenue to fund spending without directly raising headline taxes on individuals.
Currently, cash gifts are exempt from the tax as long as they are made more than seven years before someone dies. Then, gifts made within three to seven years are taxed based on how close they are to death.
The Treasury will need to take in more than £50bn in new taxes at the next Budget in the Autumn to avoid breaking the government’s fiscal rules.
Inheritance tax takings on the up
As part of its winning general election campaign last year, the Labour Party ran on its ‘Stability Rule, that all day-to-day government spending would be funded solely by tax revenue by the end of the decade.
Though the government has pledged not to raise taxes on ‘working people’, the definition of what ‘working people’ means has been slippery.
CityAM reported in July that IHT takings had surpassed £6.7bn in the 2022/23 financial year, before Reeves even took the reins at the Treasury.
Darren Jones, Rachel Reeves’ Treasury deputy, said that the category of ‘working people’ refers to “anyone that gets a payslip, basically”.
Charlene Young, senior pensions and savings expert at AJ Bell, said “government is collecting more in death taxes than ever before and the tax take has more than doubled in a decade”.
“The proportion of estates paying IHT is now back at the same level seen before the introduction of the RNRB (Residence Nil Rate Band), but rather than offset that by adding a new exemption or increasing the existing ones, the chancellor is set to slash exemptions instead.”