Reeves Eyes Inheritance Tax Shake-Up Amid Growing £40B Budget Gap

By Fidelis News Staff | 13 August 2025

Facing a mounting budget deficit, projected at over £40 billion, Chancellor Rachel Reeves is preparing to overhaul inheritance tax (IHT) and pension taxation as key pillars in her fiscal strategy ahead of the Autumn Budget.

What’s New This Evening

According to yesterday’s reports, Treasury officials are drawing up new proposals to cap lifetime gifts and tighten taper relief on IHT, aiming to boost revenue without breaking pledges to avoid taxing working people.
(The Guardian)

Pensions to Be Hit Too

Starting 2027, unspent pension pots may be treated as part of the deceased’s estate, making them liable for inheritance tax even if the account holder was under the state pension age. This change is forecast to raise about £1.5 billion annually by 2029–30.
(Financial Times)

How Big Is the Problem?

• The National Institute of Economic and Social Research (NIESR) warns Reeves must raise or save more than £50 billion annually to stay within fiscal targets — far beyond what current tax plans deliver.
  
  (Reuters)
• NIESR projects a £41.2 billion deficit, requiring a buffer of £51.1 billion by 2029–30.
  
  (The Guardian)

Why IHT Is the Least Disruptive Route

Reeves has ruled out raising income tax, VAT, or National Insurance. Instead, she is eyeing IHT and capital gains adjustments, changes that affect fewer people and are more politically viable. IHT currently applies to only 4.6% of estates.
(The Guardian)

Public and Industry Reactions

• The farming sector remains vocal. Protests over farm inheritance rules continue, despite Reeves defending reforms as necessary to close loopholes for the ultra-wealthy.
  
  (Wikipedia)
• Civil society groups warn pension changes will burden grieving families with complexity and cost.
  
  (Financial Times)
• Meanwhile, wealth migration continues, former beneficiaries of ‘non-dom’ status are leaving the UK amid tighter tax policies.
  
    (The Times)

Looking Ahead

Policy documents suggest the Chancellor is preparing to deliver difficult fiscal adjustments in the Autumn Budget—likely centred on IHT, pension tax changes, and possibly CGT reform. The goal is to raise new revenues while maintaining political credibility and attracting investment.

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