Rachel Reeves intends to increase inheritance tax as part of a scramble to raise as much as £35 billion in this month’s Budget.
The Chancellor is reportedly considering a string of changes to the tax, which is typically charged at 40pc on assets above a £325,000 threshold when a person dies.
As well as increasing the headline rate or cutting the level at which the tax becomes payable, Ms Reeves could also alter reliefs and exemptions.
For example, the Treasury could amend a rule which allows money to be passed on tax-free if it is given away at least seven years before someone dies.
It could also alter rules that exempt businesses and farmland from the tax.
The plans were first reported by the BBC. A Treasury spokesman told the corporation: “We do not comment on speculation around tax changes outside of fiscal events.”
Any changes are likely to be highly controversial. Only 4pc of estates currently pay inheritance tax, but polling has consistently suggested the public regard it as unfair.
‘Biggest tax raid in history’
Jeremy Hunt, the shadow chancellor, has described it as “profoundly anti-Conservative”.
Ms Reeves is understood to be planning the biggest tax raid in history in her Budget, which is to be held on October 30.
She has concluded there is a £40 billion black hole in the public finances and intends to fill as much as 90 per cent of this gap with tax increases instead of cutting spending, after ruling out a return to Tory “austerity”.
A £35 billion-plus tax raid would be the biggest ever recorded in any Budget in cash terms.
As well as a hike in inheritance tax, there is growing speculation that this could include the first rise in fuel duty for 13 years.
Treasury officials want the Chancellor to raise the tax on petrol and diesel, saying that if she does not do so it would force her to find another £5 billion elsewhere.
Ms Reeves is also widely expected to raise capital gains tax and employers’ national insurance contributions.
While the majority of the £40bn is expected to be generated through tax rises, the Chancellor will also ask individual departments to find savings.
This has driven some ministers to raise concerns, with several reportedly writing to Sir Keir Starmer to complain.
On Thursday, Downing Street acknowledged that engagement between departments and No 10 was a “standard part of the process” ahead of the Budget.
But it warned disgruntled ministers that they will not be able to do “everything they want to” with the cash they are given.
As some departments such as the NHS and defence have “protected” budgets with faster spending increases, it is believed there will be tough decisions in other areas such as local government, transport and the environment.