Labour’s shadow chancellor, Rachel Reeves, is being urged to reform inheritance and capital gains taxes to help address the UK’s growing fiscal deficit, with proposals from think tank Demos outlining potential changes that could raise up to £2.6 billion annually.

Research by Demos suggests a new banded inheritance tax system, which could bring in £16 billion over the next parliament, closing loopholes and ensuring a fairer distribution of the tax burden. The proposed changes include introducing a 30% inheritance tax rate for estates below £1 million, rising to 45% for those worth over £2 million, alongside imposing capital gains tax on inherited assets.

With Labour needing to find £16 billion in additional revenue to avoid austerity measures, Reeves is under pressure to explore such reforms, especially after ruling out increases to VAT, income tax, or national insurance. The reforms are also seen as a way to ease the tax burden on working families while addressing the growing value of estates.

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Calls grow for Rachel Reeves to reform inheritance tax system to raise billions