Four ways the government could increase inheritance tax in upcoming Budget raid

The government is poised to raise more money through inheritance tax in what is forecasted to be the largest tax-raising Budget on record. The Chancellor is eyeing a number of exemptions and loopholes to bring in billions from the estates of the deceased, reducing the amount people can pass on to their loved ones.

At present, inheritance tax is levied at 40 percent on estates valued over £325,000. However, due to various exemptions, including those related to the family home, most people can pass on £1 million without paying the tax. This results in less than 4 percent of all estates being liable for inheritance tax, while the wealthy, with estates worth over £10 million, often reduce the amount paid by utilising various exemptions. Specific changes to the rules will remain confidential until the Budget on October 30, but think-tanks have highlighted areas where inheritance tax loopholes could be eliminated.

The Demos think tank suggested that the UK could emulate South Korea's inheritance tax rules, which would increase the percentage of estates affected by the tax from the current 3.7 percent to 6.4 percent. This would prevent the wealthy from using exemptions and loopholes to evade the tax, potentially boosting government revenue by up to £9 billion annually.

Demos has highlighted: "We could make our system fairer. In the UK, the wealthiest estates tend to pay lower effective rates (the percentage of all inheritance paid in tax). Those worth between £2m and £7.5m paid 25 percent in 2020-21, while those over £10m only paid 17 percent. In South Korea, meanwhile, the effective rate reached 33 percent for estates between £6m and £30m, and 44 percent for those over £30m in 2022."

Discussing potential reforms, they suggest