First reported by The Guardian, it has been suggested that this could include a cap on lifetime gifting and changes to what is given away before a person dies.
Currently, gifts made seven years before someone dies are not liable for IHT, and gifts made within this period are taxed on a sliding scale at a rate of up to 32%.
It has been speculated that the tapered rates, which start at 8% for gifts given 6-7 years before someone dies, could be changed.
It is also rumoured that the Treasury is considering introducing a lifetime cap on the amount of money or value of assets that can be donated as part of a person’s IHT planning.
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IHT changes could have an impact on economic growth
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “It’s hardly surprising that inheritance tax is back in the frame, because it meets the government’s criteria of raising tax without taxing people more during their working lives.
“The system is so fiendishly complex that there are an enormous number of rules, and therefore tweaks, that the government could consider.”
She said the government should balance this against the fact that “these gifts allow for money to pass through the generations”.
Coles added: “It means younger family members can put it to work for them, buying homes and spending. These things bring in taxes, from stamp duty to VAT. They also feed more money into the economy and boost economic activity.
“There is a risk that a change in the rules would stymie this flow of cash, which could have an impact on growth.”
Rachael Griffin, tax and financial planning expert at Quilter, said the proposed changes would not just bring large transfers into scope, but also “modest, routine support between family members”.
She said more people were already being drawn into the IHT remit due to frozen thresholds and rising property values.
Griffin said a lifetime cap would be a “significant departure from current policy”, adding: “The UK has never had such a limit, and if it were set too low, it could affect a large number of middle-class estates, particularly in areas where property wealth alone can easily breach frozen thresholds.”
She continued: “Without careful thresholds and exemptions, a cap risks discouraging these transfers, limiting the flow of wealth through the economy, and unfairly penalising families who make regular small gifts over many years.
“Reform should be proportionate and targeted at genuine avoidance, while ensuring families can continue to provide support without fear that normal acts of generosity will be swept into the IHT net. The Office of Tax Simplification has previously recommended shortening the gifting window from seven years to five and abolishing taper relief to make the system simpler. A lifetime cap could move in the opposite direction, adding complexity at a time when simplification is sorely needed.”
Last month, the government announced that unused pension pots and death benefits would also be included in estates for IHT purposes, and this will apply from 6 April 2027.
This will include people who die before the minimum pension age.
