As John Healey prepares his first budget as chancellor, tax is the small word that is likely to cast a large shadow over next week’s big fiscal announcement. In its election manifesto, Labour promised not to increase the “big three”: income tax, national insurance and VAT. As a result, much of the pre-budget speculation has centred on which other levies Healey might seek to change.
No one seems to like paying tax, but some taxes – or the rules around them – are more unpopular than others. Here, we look at some that have been under the spotlight recently, and the facts and figures behind them. Inheritance tax: is it a levy on middle-class families?
In a recent sales pitch to voters, the Conservative leader Kemi Badenoch pledged to “abolish inheritance tax [IHT] as soon as we can afford it”. She said IHT was “supposed to be a tax on the super-wealthy” but had become a “tax on ordinary middle-class families in every corner of our country”. It is true that the sums collected through the tax have reached record levels.
A total of £8.5bn was paid in the 2025-26 tax year – up from £8.2bn the year before. The government’s forecaster, the Office for Budget Responsibility (OBR), predicts £9.5bn will be raised through IHT this year and £14.5bn by 2030-31. At present, about 5% of estates pay IHT – roughly 30,000 a year.
However, rising house prices and frozen allowances, plus recent rule changes that will pull some people’s pensions into the net, mean IHT has become of growing concern among some families who do not consider themselves to be wealthy. The standard IHT rate is 40%, and could be payable on assets above the £325,000 tax-free allowance everyone is entitled to. However, beyond this headline rate are allowances that remove or reduce the bill for most families.
This tax-free threshold is increased to £500,000 by an additional £175,000 residence allowance if you leave your main home to a direct descendant (for estates worth less than £2m). You can leave everything to your spouse without paying tax, and they also inherit any unused allowances. This means a couple can leave up to £1m to children or grandchildren without attracting the tax.
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