The Treasury is looking at inheritance tax as one of the ways to raise more cash ahead of the autumn Budget, as Labour seeks to plug a gap between revenue and spending of up to £40bn.  

Officials are examining how much revenue would be raised by tightening rules on the gifting of money and assets, although no decisions have been taken, the Guardian reports. 

One avenue being explored is a cap on lifetime gifting. 

Currently, gifts made seven years before someone dies are not subject to inheritance tax, 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%. 

A lifetime cap could be introduced to limit the amount of money or value of assets an individual can donate as part of their inheritance tax planning, and the Treasury is also reviewing rules around the taper rate. 

“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,” a source with knowledge of the work tells the newspaper. 

The source adds: “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.” 

Inheritance tax is a feared levy because estates worth over £325,000 are liable to the 40% tax, with more estates being pulled in every year due to frozen thresholds and rising property prices. 

However, just 4.6% of deaths resulted in this levy being paid between 2022 and 2023, according to the latest HMRC data. 

Hargreaves Lansdown head of personal finance Sarah Coles says: “The government is thought to be exploring the possibility of limiting the total value of one-off gifts that people can make during their lifetime under the ‘potentially exempt transfer’ rules.  

“The fact that people have to be able to afford to give this money away, and that it usually doesn’t involve handing over the family home, is thought to be part of the attraction – because it avoids targeting those whose wealth is tied up in property.” 

Coles adds: “The government might also explore the taper relief, which applies if you give away more than your nil rate bands before you die, and the rate of tax you pay gradually drops between three and seven years after the gift is given.  

“This would mean a risk of a heftier tax bill on the estate, which would mean they have less to pass onto their family after their death.  

“It would introduce a cliff edge to the system, so that someone who made a gift in good faith and died one day short of seven years would be hit with a huge tax bill.” 

Chancellor Rachel Reeves (pictured) is looking to plug the public finances this autumn without breaking Labour’s manifesto pledge not to lift taxes on “working people,” which covers national insurance, income tax and VAT.