Treasury targets inheritance tax rises to plug growing UK deficit

Clampdown on gifting money and assets under consideration for budget

- Anna Isaac

The Treasury is looking at ways to raise more money from inheritance tax amid growing pressure on the finances as the budget approaches, sources have told the Guardian.

Officials have been tasked with examining whether tightening rules on gifting money and assets could help close a gap between revenue and spending estimated to exceed £40bn.

Although no decisions have been taken, the government has been careful not to rule out tax rises later this year amid slowing economic growth, higher-than-hoped inflation and unemployment at a four-year high.

Labour MPs have been pushing the idea of a wealth tax, but changes to inheritance tax (IHT) thresholds could be similarly controversial.

Rachel Reeves and Keir Starmer have already prepared the ground for tax rises in recent interviews, suggesting that the pressure on public finances is too great to rule them out.

However, the government's pledge not to raise taxes on "working people" in its election manifesto has left the chancellor with limited options to tackle a yawning deficit caused by factors including Donald Trump's tariffs, higher debt interest payments and U-turns on welfare cuts.

Among the moves being considered are changes to how wealth or assets can be given away prior to death to reduce inheritance tax liabilities. This includes examining the possibility of a cap on lifetime gifting.

At present, gifts made seven years before someone dies are not subject to IHT, while those given three to seven years before death are taxed on a sliding scale known as "taper relief", with the rate reducing each year from 32% to 8%.