Chancellor Rachel Reeves is reportedly considering a major shake-up of inheritance tax (IHT), with plans that could see valuable exemptions scrapped. The Autumn Budget, scheduled for November 26, is set to be a pivotal moment for UK households as the government seeks new revenue streams.
The Rising Cost of Inheritance
Often labelled the UK's 'most hated tax', inheritance tax is already delivering significant sums to the Treasury. In the first half of this tax year alone, IHT receipts reached £4.4 billion, a figure that is £100 million higher than the same period last year.
This financial pressure is driving a surge in public anxiety. Adam Kemp from Hargreaves Lansdown confirmed that financial advisers are witnessing a "surge in IHT planning enquiries", with speculation about future changes creating momentum.
Targeting the Gifting Rules
The core of the potential reform lies in the current gifting allowances. At present, gifts made seven years before death are entirely exempt from IHT. Gifts given between three and seven years before death benefit from 'taper relief', where the tax rate slides down from 32% to 8%.
According to sources, the Treasury is reviewing these rules. One proposal is to introduce a lifetime cap on the amount an individual can gift as part of their IHT planning. The taper relief system is also under scrutiny, potentially making it harder for estates to reduce their tax liability.
A Drive for Fairer Wealth Taxation
A government source familiar with the work told The Guardian that the review is necessary because "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."
The source emphasised the challenge of designing a system without loopholes, stating the aim is to "ensure it’s a fair approach." The government's broader goal appears to be shifting the tax burden away from earnings from work and towards stored wealth.
Even without any changes, IHT revenue is set to climb. A policy announced in last year's Budget will bring most unspent pension pots into the IHT net from 6 April 2027, a move estimated to pull 10,500 more estates into paying the tax in the 2027/28 financial year.
