The Treasury is reportedly weighing up reforms to the UK’s inheritance tax system in a bid to tackle a looming £50 billion shortfall in public finances ahead of the autumn budget.
Chancellor Rachel Reeves is under mounting pressure to balance the books following Labour’s recent policy U-turns, sluggish economic growth, and higher levels of borrowing. Economists have warned that Reeves may be left with no choice but to raise taxes or abandon her flagship borrowing commitments.
According to a report by The Guardian, ministers are exploring changes to how gifts are treated under current inheritance tax laws. Presently, individuals can gift unlimited sums to friends or family tax-free so long as the giver lives for at least seven years after making the donation.
Money transferred within three years of death is subject to the full 40% inheritance tax rate. Between three and seven years, a sliding “taper relief” applies, reducing the tax owed depending on the timing of the gift.
Now, the Treasury is said to be assessing the possibility of placing a lifetime cap on tax-free gifting. Officials are also reviewing the taper relief system to determine whether it could be restructured to increase revenue.
“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. 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,” a source told the newspaper.
Despite the discussions, no formal decisions have been made. Sources suggest that no senior-level talks have yet taken place, and proposals are still in their early stages.
This comes as Reeves has already ruled out increasing income tax, VAT, or national insurance—narrowing the chancellor’s options for generating extra funds.
Inheritance tax pulled in a record £6.7 billion in 2022–2023, highlighting its potential as a source of additional revenue. But ministers are treading carefully, particularly amid recent signs that wealthy investors are deserting the UK due to policies like the abolition of non-dom status.
A Treasury spokesperson commented on the wider fiscal strategy: “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.”
The idea of clamping down on inheritance tax exemptions is likely to be politically sensitive. On one hand, it offers a way to target untapped wealth without affecting everyday earners. On the other, it risks backlash from voters and the perception of penalising family legacies.
With billions needed to plug the fiscal gap, all eyes will be on the chancellor’s next move. Will inheritance tax become the next battleground in the UK’s fight for economic stability?
