Chancellor of the Exchequer Rishi Sunak is preparing to lay out his plans for public spending and taxation in his Budget on October 27 as the UK economy battles inflation and supply chain issues. Speaking to the TaxPayers’ Alliance and Institute of Economic Affairs at the Conservative party conference on Tuesday, Mr Sunak acknowledged that state spending was at a “historically high level”. He said his priority would be controlling the deficit rather than reducing the size of the state or cutting taxes. Mr Sunak explained: “We will have to set out probably in the autumn an approach to fiscal policy, we had to suspend in one sense our typical fiscal rules that normally we would have to provide some guardrails for spending and borrowing as a result of the crisis… I think it would be reasonable and sensible to put those guardrails back in.”

The Chancellor added: “When we are in a position where the public finances are back in a sustainable place, then of course that’s the prerequisite for reducing the tax burden.”

Wealth taxes have been left relatively unscathed since the start of the pandemic, with the Government instead opting to raise National Insurance last month.

But Steve Webb, a former pensions minister and finance commentator, tells Express.co.uk that inheritance tax could be vulnerable to a stealth tax.

He said: “I think the stealth approach is more likely. Inheritance tax is an unpopular tax, and ironically not a lot of people pay it.

“But even so, a Conservative Chancellor raising tax on inheritance would feel quite uncomfortable for him I think, so he’d rather do it stealthily.”

A way of stealthily increasing funds through inheritance tax can be to freeze or adjust thresholds people start paying, or other measures other than simply increasing the rate of tax outright.

In his Budget last March, Chancellor Sunak extended the freeze on the inheritance tax threshold until 2026.

There are currently two tax-free allowances for inheritance. Each individual has a tax-free allowance – the ‘nil-rate band’ – of £325,000.

If they are giving away a property to a direct descendant (ie children or grandchildren) there is an additional allowance called ‘the residence nil-rate band’. It is currently £175,000.

There has been record amounts of inheritance tax paid in the last year, meaning wealth taxes could be a tempting route to raising cash for the Government, Mr Webb added.

He said: “It must be very tempting to be honest, because once you have done your National Insurance rise, there isn’t a lot left. So it must be very tempting to find corners of the system, thresholds, allowances or obscure rules to bring more money in.

“Sadly, one byproduct of Covid is that they’ll get more money on inheritance tax. A lot of people will have died sooner, so they will get more money probably next year as well from inheritance tax or capital gains tax.”

Britons forked out record amounts in inheritance tax and stamp duty during the pandemic, official figures from August showed.

A higher number of people dying with coronavirus meant over £570million was paid out in inheritance tax in July this year, which is the most ever paid in a single month.

The Treasury pocketed a total of £2.1billion in the wealth levy between April and July this year, which is an extra £510million compared to the same period last year.

READ MORE: Capital gains tax: Sunak pressured as sellers face ‘astronomical’ fine

Sarah Coles, a personal finance analyst at Hargreaves Lansdown, told This Is Money in August: “The record tax taken in July is likely to be a result of the horrible rise in deaths of people with Coronavirus earlier this year.

“There’s typically a long delay between when someone dies and when the tax is paid, which can take up to six months. It means that what we’re seeing now is a result of the tragically high death rate in early 2021.”

HMRC said it was too early to say whether the higher death rate and higher tax intake were linked.

However, Ms Coles argued that “given that the last peak in inheritance tax was in October, six months after the first wave, we can see a possible link.”

Another economic challenge that could push many Britons over various tax thresholds is inflation.

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The Bank of England’s new chief economist warned this week that the “magnitude and duration” of the UK’s inflation spike is “proving greater than expected”.

Huw Pill said: “With still strong demand for durable and intermediate goods but ongoing tensions in international supply chains owing to transport and production dislocations, goods prices have risen at the global level.

“Much of the recent rise in UK inflation stems from developments in imported goods prices that reflect these dynamics, as well as rises in international commodity prices.

“As the pandemic recedes and the level and composition of global demand and supply normalise, these inflationary pressures should subside.

“But the magnitude and duration of the transient inflation spike is proving greater than expected.”



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