The UK Government has dismissed claims Rishi Sunak is drawing up plans to cut and eventually abolish inheritance tax as “newspaper speculation.”

Defence Secretary Grant Shapps did not deny the reports - based on multiple sources -  that the Prime Minister was looking to slash the levy as one of his announcements at next month’s Conservative Party conference.

According to reports, the change could, in part, be paid for by a below-inflation increase to benefits. 

It comes as the Sun on Sunday reported that local authorities have been told to be prepared for a general election in May.

“Council CEOs have been told to be ready by then, and Tory HQ is cranking up. It sounds like game on to me,” a source told the paper. 

The Prime Minister effectively started the campaign last week when he controversially scrapped a number of Net Zero policies last week.

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Inheritance tax is charged at 40% on a person’s estate above the threshold which currently sits at £325,000.

Married couple can share their allowance, meaning parents can pass on £1 million to their children without any tax being paid.

In 2021/22 estimates suggest that the tax was paid on 37,000 estates at death in 2021/22, which represents less than 5% of all deaths, raising £6.1 billion.

According to the Sunday Times, one proposal being considered is to initially reduce the 40% rate, before promising to abolish it completely in future years.

Speaking to Sky News, the Defence Secretary said inheritance tax was “deeply unfair.”

 “I think it’s a question for many people of aspiration, and people know that there’s something deeply unfair about being taxed all their lives and then being taxed in death as well.”

But he said: “You will certainly have to wait for a budget or another event for the Government to set out whatever the plans will be.

“Generically I’m in favour of all taxes being lower, but we’ve got to be fiscally responsible.”

The Herald:

Mr Shapps’ father died in September and he said: “Unfortunately, I just lost a parent and I can understand entirely why people find inheritance tax particularly punitive.

“However, there are lots of different tax considerations for the Chancellor.”

While only a handful of people will pay the levy, YouGov polling suggests people significantly overestimate their likelihood of having to pay.

31% think that their assets will be enough to attract inheritance tax when they die, and 15% expect to receive an inheritance large enough to attract the tax. 

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Mr Sunak was reportedly set to announce the inheritance tax plan when he was running for the Tory leadership against Liz Truss in the summer of 2022. 

“In the end, Rishi decided not to do it, because he thought it would look a bit desperate when he was so far behind,” said a senior Tory close to him. 

Paul Johnson, director of the Institute for Fiscal Studies think tank, said in July that there might be a case to “reform” inheritance tax by reducing the 40% rate, though he warned that abolishing it entirely would increase the “advantage” of those whose parents were “already wealthy”.

Labour’s shadow Treasury chief secretary Darren Jones said: “A year ago Liz Truss trashed the economy with unfunded tax cuts.

"Now Rishi Sunak is doing what Liz Truss wants.

“Abolishing inheritance tax – which 96% of people never pay – is an unfunded tax cut of £7.2 billion per year.

“The biggest threat to the economy is the Conservative Party.”

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Meanwhile, multiple papers report that Mr Sunak is set to axe the HS2 rail line from Birmingham to Manchester.

The Sunday Telegraph reported the potential cost of the high-speed rail scheme – which Chancellor Jeremy Hunt has said is “out of control” – had increased by £8 billion.

The Observer suggested the decision to kill off the Manchester leg of the scheme could come before the Tories host their conference in the city on October 1.

The Prime Minister and Chancellor are reported to be meeting to discuss the situation in the coming days.

A Whitehall source told the Telegraph: “There is a reluctance to throw good money after bad.”

Former prime minister Boris Johnson has labelled the scepticism around the scheme “total Treasury-driven nonsense”, stressing that it would make no sense to have a “mutilated” HS2 and warning that announcing it before the Manchester conference would be “the height of insanity”.

David Cameron has also privately raised concerns.

Mr Shapps said the Prime Minister was prepared to take “difficult long-term decisions.”

He told Sky News: “It is the case that all of these big decisions where budgets are – in particular in the case of HS2 – inexorably going higher and higher and higher… It’s absolutely right that the Government looks at it and says: ‘hold on a minute, is this just an open-ended cheque or are we going to make sure that this project gets delivered to a pace and a timetable that actually works for the taxpayer?'”

Mr Shapps said a decision would be taken “in due course” but “what I can say is that we take those long-term decisions seriously, but we don’t think that any amount of money – no matter how big the budget gets, you should just carry on ploughing it in – there has to be a point at which you say ‘hold on a minute, let’s just take a break here'”.