Major Inheritance Tax 'overhaul' tipped to be on way in Budget as changes could be on the way

Reports claim the Labour Chancellor is looking to raise up to £40billion from tax hikes and spending cuts in her October 30 Autumn Budget as the Government seeks to avoid a return to austerity

Shadow Chancellor of the Exchequer Rachel Reeves is set to shake up Inheritance Tax rules, with reports suggesting major revisions are on the horizon in her Autumn Budget later this month. Presently, Inheritance Tax is levied at 40% on the estate's value - including property, money, and possessions - of someone who has passed away.

However, currently, sizeable allowances enable considerable assets to be bequeathed before the tax kicks in, resulting in less than 5% of estates actually paying it. Changes may be afoot for some exemptions, with The Telegraph hinting at a potential alteration to the rule that permits tax-free monetary gifts if given at least seven years prior to death.

The specifics of the anticipated changes, due to be revealed on October 30, remain ambiguous, as does the impact on future taxpayers. A Treasury spokesperson declined to provide details to the BBC, stating: "We do not comment on speculation around tax changes outside of fiscal events."

At present, assets passed on to a spouse or civil partner are exempt from Inheritance Tax, but others may face the levy if their estate exceeds £375,000.

Some individuals can leave more than this to their loved ones. An additional allowance of £175,000 is available if you pass your home to your children - including adopted, foster or stepchildren - or grandchildren, reports the Mirror.

This means your Inheritance Tax threshold can increase to £500,000. Any unused allowance can also be transferred to your partner.

Therefore, by combining the standard £325,000 Inheritance Tax threshold and the property limit of £175,000 for grandchildren, it's possible for couples to have a combined tax-free and property limit of £1million upon death. Rachel Reeves is aiming to generate up to £40billion from tax increases and spending cuts in the Autumn Budget as the Government tries to prevent a return to austerity.

Changes to Capital Gains Tax could also be under consideration. Capital Gains Tax is the tax charged on the profit made from the sale of an asset that has increased in value.

You pay Capital Gains on most valuables and personal possessions, excluding your car. It can also be paid on any property that isn't your main residence, your main home if you've rented it out or used it for business, or investments held outside an ISA or pension above the tax-free limit.

The standard rate is 18% on residential property, 10% on other assets, while the higher rate is 28% on residential property, 20% on other assets.