Reeves collects record £2.2bn from ‘death tax’ ahead of Budget

Chancellor Rachel Reeves has secured a record £2.2 billion in inheritance tax (IHT) receipts in the three months leading up to September, as anticipation builds for potential tax changes in her upcoming maiden Budget.

According to figures from the Office for National Statistics (ONS), inheritance tax brought in £736 million last month alone, raising the total for the financial year to nearly £4.3 billion—an increase of more than 10% compared with the same period last year.

Inheritance tax, often referred to as the “death tax,” is currently charged at 40% on assets above £325,000 when someone dies. Reports suggest that Reeves is considering a range of changes to the controversial tax, including extending the “seven-year rule”—which allows gifts to be passed on tax-free after seven years—to 10 years. There is also speculation that she may remove reliefs on shares listed on the Alternative Investment Market (AIM), as well as exemptions for businesses and agricultural land.

Potential changes to inheritance tax rules

The exemptions for agricultural land were initially designed to help farmers pass down land to the next generation, but critics argue that they are often exploited by the wealthy to reduce their estate’s tax liability. Reeves is reportedly reviewing these reliefs as part of a wider effort to reform IHT and generate additional revenue for the Treasury, which is facing pressure to close a significant fiscal gap.

Sarah Coles, head of personal finance at Hargreaves Lansdown, noted: “Even if the Government makes no changes at all, we’ll continue to face ever-higher tax bills, thanks to frozen income tax and inheritance tax thresholds and the slashing of capital gains tax and dividend tax allowances. The need for more cash to fill the black hole in the Government’s finances could push up any of these taxes.”

Rising asset values drive higher tax revenues

Inheritance tax receipts have surged due to the increasing value of assets over the past year. The FTSE 100 has risen by 12.5%, while UK house prices increased by an average of 2.8% in the year to August. These rising asset values, combined with frozen tax thresholds, are pushing more estates into the IHT bracket.

Beyond inheritance tax, the Chancellor is also benefiting from other asset-based taxes. Stamp duty land tax, levied on property purchases, generated £1.2 billion in September, up from £1.1 billion in the same month last year. Similarly, stamp duty on shares brought in £263 million, a £40 million increase from 2023, while capital gains tax, charged on profits from the sale of investments, raised £192 million—up 16% year-on-year.

Increasing tax burden and future reforms

With the government facing a challenging fiscal environment, Reeves is expected to use the Budget to introduce a series of tax reforms aimed at boosting revenues. These could include changes to inheritance tax, capital gains tax, and possibly new measures to address the rising cost of public services.

While many of the proposed reforms could raise significant sums for the Exchequer, they are likely to face opposition from affected sectors and individuals, especially if they increase the tax burden on families and businesses.

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Reeves collects record £2.2bn from ‘death tax’ ahead of Budget