The UK Treasury is exploring reforms to inheritance tax to address a £50 billion shortfall in public finances ahead of the upcoming autumn budget.

Chancellor Rachel Reeves is grappling with a multibillion-pound spending gap, exacerbated by recent government U-turns on winter fuel payments and welfare reforms.

Changes to inheritance tax are viewed as a potential means to access wealth tied in appreciating assets like real estate, while ensuring that reforms do not create loopholes.

Proposed changes may include imposing a lifetime cap on tax-free gifts, which are currently exempt from inheritance tax if made over seven years before death.

Despite the pressure for a wealth tax from some Labour Party figures, the Treasury emphasizes that strengthening public finances will focus on economic growth rather than solely on tax increases.

While some Labour MPs advocate for a wealth tax, Reeves has committed to not raising taxes on working individuals.

Economists are urging Reeves to either raise taxes or revise her borrowing rules to address the looming financial shortfall.

The National Institute of Economic and Social Research has projected a £41.2 billion shortfall for Reeves by 2029-30, necessitating either tax increases or spending cuts.

Currently, inheritance tax generates around £7 billion annually and affects approximately 4% of estates, applying a 40% rate to estates over £325,000.

Concerns have been raised about wealthy individuals leaving the UK due to recent tax measures, including the abolition of non-domiciliary status, complicating the Treasury's decisions.

This financial gap has arisen from various factors, including Labour's policy reversals, increased borrowing, and sluggish economic growth.

The government remains committed to keeping taxes low for working people, as outlined in its election manifesto.