Rachel Reeves is eyeing changes to inheritance tax to help plug the huge gap in the public finances (Image: Getty)
Rachel Reeves is eyeing changes to inheritance tax to help plug the huge gap in the public finances, according to reports.
The Chancellor is said to be looking at tightening rules on gifting of money and assets before someone passes away to address an estimated ￡50billion spending hole at the next Budget.
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Under consideration is the prospect of a lifetime cap which would limit the amount a person could gift before their death, the Guardian reported. The news comes after it was revealed that Labour intends to hit families with tax raid on pensions pots of deceased loved ones.
'Politics of spite'
The Tories warned that the plans revealed Labour's 'politics of envy' and said people should not be punished for passing on their hard-earned money.
Mel Stride, the shadow chancellor, said: 'The politics of envy strikes again. This is tantamount to class warfare. More politics of spite.
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'Those who have worked hard, saved and want to pass something on to their loved ones shouldn't be punished by yet more taxes from Labour.'
Last week, a report by the National Institute of Economic and Social Research said Ms Reeves must find ￡50billion in tax rises or spending cuts to balance the books by the end of the decade, warning of the need for significant tax rises in the autumn to pay for it.
The respected think tank said higher-than-expected public sector borrowing and weaker economic growth had left the Chancellor with an 'impossible' choice between the two options.
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'Boomers' in Reeves' sights
She has already ruled out increasing National Insurance, income tax and VAT for workers leaving her limited options to raise money unless she changes her fiscal rules.
Inheritance tax raises around ￡7billion a year and is paid by around four per cent of estates.
It is currently set at a rate of 40per cent of the value of estates above ￡325,000.
Labour officials are said to be concerned about the amount of money being extracted from pension pots and gifted to relatives.
They are reportedly looking for a way to tap into the wealth of the 'boomer' generation who have benefited from rising property prices and gold-plated pensions.
Inheritance tax rules
Gifts made seven years before someone dies are at present not subject to inheritance tax.
Those given three to seven years before death are taxed on a sliding scale known as 'taper relief'. The rate reduces each year from 32per cent to 8per cent.
A Treasury source told the Guardian: '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.'
The source added: 'IHT can raise more, and even if we do nothing, it will raise more money as the threshold for paying it stays frozen.
'But we have to look at the levers for taxing wealth if the aim of the government is to avoid hitting earnings from work as much as possible.'
Farmers already targeted
At the last Budget, Ms Reeves changed the rules so farmers paid inheritance tax for the first time on estates over ￡1million.
The paper also reported that Ms Reeves is looking at whether to increase capital gains tax rates by a few percentage points.
This could be teamed with an allowance for those who put money into British businesses so as not to deter investment into the UK.
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Reeves under pressure
Ms Reeves has been under pressure from her backbenchers to introduce a form of wealth tax to target the rich.
A Treasury spokesman said: '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 possible changes to inheritance tax come after Sir Keir's popularity today sunk to its lowest level to date.
The Government's approval rating slipped to minus 55, according to pollsters YouGov.
Just 13 per cent of the public included in the survey said they approved of the Government's record since returning to power under Sir Keir last summer - the same percentage as the previous week.
Gifts made seven years before someone dies are at present not subject to inheritance tax. (Image: Getty)
Labour's record low approval
But those who disapproved slipped by another percentage point, down to 68 per cent.
It meant the net approval rating lurched to a record low for this administration.
The weekly poll makes grim reading for Labour HQ, and follows a series of blows to Sir Keir's authority, including fresh accusations he has failed to get a hold of the small boats crisis, and claims he has presided over a 'two-tier' justice system.
He also had to deal with the resignation of his homelessness minister over a rental home row.
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The YouGov data came after it was officially confirmed more than 50,000 migrants have arrived in the UK after crossing the English Channel since Labour won the 2024 general election.
Analysis claimed the milestone was reached in 401 days of the Starmer government, compared with 603 days for Rishi Sunak's administration, and more than 1,000 days under Boris Johnson's.
Liz Truss did not last long enough to reach the landmark, although a total of 10,532 migrants arrived in the UK after crossing the Channel during the 49 days of her premiership.
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