Chancellor Rachel Reeves is facing mounting backlash over plans to increase inheritance tax, with critics warning that the policy could disproportionately affect middle-class homeowners.
The proposal, often called the “death tax,” has stirred up widespread discontent. It raises around £7bn annually for the Treasury but remains one of the least popular taxes among voters.
Senior Conservative politicians have voiced strong opposition, accusing Reeves of punishing people who have worked hard and saved throughout their lives.
The issue has ignited fresh debate over the fairness of inheritance tax, as more families could find themselves unexpectedly burdened by the levy due to rising property values.
Former Tory leader Sir Iain Duncan-Smith sharply criticized the proposed changes, stating that the tax would “punish ordinary people who have worked hard.” He emphasized that the current £325,000 threshold for paying inheritance tax is no longer suitable in today’s housing market, particularly in southern England.
“We’re not talking about ‘zillionaires.’ A two-bed flat in London would be twice that price,” he added, pointing to the inflated property prices that have pushed more homeowners into the inheritance tax bracket.
Backlash Intensifies Against Reeves’ Budget
The inheritance tax controversy comes amid growing discontent over Chancellor Reeves’ budget proposals, which include several other contentious measures. These include stripping millions of pensioners of winter fuel payments, sparking further criticism from the opposition and the public.
Shadow Chancellor Jeremy Hunt accused Labour of secretly planning the tax hikes for months but failing to be upfront during the election campaign. “It looks like it will be people who have saved all their life to provide an inheritance to their family who will pay the price for Labour’s tax rises,” Hunt stated.
Adding to the concerns, financial experts are warning that the planned changes could drag more middle-income earners into paying inheritance tax. Jason Hollands, from the advisory firm Evelyn Partners, cautioned that “the 4 percent of estates paying it makes it seem like a tax with a marginal impact, but that figure doesn’t include people trying to reduce their estate. It’s the heirs who are often not wealthy who get clobbered by the tax.”
Currently, no inheritance tax is owed on estates worth up to £325,000, a figure that increases to £500,000 for homeowners leaving their property to children or grandchildren. Couples can combine their allowances, effectively shielding up to £1m from inheritance tax. However, any amount beyond these thresholds is taxed at a flat rate of 40 percent.
Growing Public Discontent Over Tax Fairness
Recent polling shows that public sentiment is firmly against raising inheritance tax. A YouGov poll found that only 27 percent of the population supports an increase, while 60 percent oppose it. This sentiment echoes long-standing concerns about the fairness of the tax, with many feeling that it disproportionately affects middle-income families as property prices continue to rise.
The £325,000 threshold has remained unchanged since 2009 despite the substantial increase in property values. As a result, more estates are being dragged into the tax bracket, a trend that experts say will only accelerate as the baby boomer generation — the oldest of whom are now in their late seventies — passes on their accumulated wealth.
“Boomers benefited from the post-war economic rally and the subsequent rise in house prices. Their wealth will soon start to be inherited in earnest, dragging more people into the tax.”
Jason Hollands
Financial expert Martin Lewis also weighed in, warning that while the tax “makes the wealthiest a bigger brunt,” many more people fear it than will have to pay it. This fear, combined with the rising number of estates liable for inheritance tax, has pressured the government to reconsider the threshold.
As such, while the debate around inheritance tax heats up, Chancellor Reeves faces a difficult decision of raising revenue for the Treasury without alienating middle-class voters already feeling the squeeze from rising living costs and falling real wages.
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