'Radical' Inheritance Tax change coming under Labour with rules 'ripped up'

The shake-up from Chancellor Rachel Reeves could see the transfer the burden from the estates of the dead to the recipients of cash and assets.

A "radical" inheritance tax change is coming under the new Labour Party Budget, it has been claimed. The shake-up from Chancellor Rachel Reeves could see the transfer the burden from the estates of the dead to the recipients of cash and assets.

Currently inheritance tax is charged against the estate of the person who has died before the remainder is distributed to those named in the will. But the Resolution Foundation argues the tax should be transferred to the people who receive the bequests in a move that would see far more hit with a tax on these windfalls.

Ms Reeves wants to raise up to £50 billion – double the sum previously thought – to spend on public services such as the NHS. She has ruled out direct tax increases on 'working people', but left the door open to higher wealth taxes on inheritance, capital gains and pensions that would also hit the middle classes.

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Economist at the think tank, Molly Broome, told the Telegraph: “We are still very much in favour of scrapping IHT and moving to a lifetime tax on recipients.” The Foundation claims that the tax system 'badly needs to respond' to the way increases in housing wealth and other assets have created 'winners and losers' based on luck such as 'being born to the right parents'.

It concludes: “It may well be worth ripping up existing IHT legislation and starting again with a new system that delivers all of these desirable changes at once and is fit for the coming decades and the increased flow of inheritances they will bring.”

A Treasury spokesman said: “We do not comment on speculation around tax changes outside of fiscal events.” IHT is currently levied on the value of someone's estate – the assets they leave – when they die.

The first £325,000 is tax-free, after which an estate is potentially liable to a flat-rate of 40 per cent, which is taken off before the assets are distributed. The threshold can increase to £500,000 if you give your home to your children or grandchildren. And there is no IHT to pay if you leave your estate to your spouse or civil partner, meaning in some cases estates of up to £1million are not liable for tax.