Angela Rayner, Deputy Prime Minister, is under fire after a leaked memo revealed plans to target a major inheritance tax relief used by families, investors and business owners to pass on wealth.
The proposal has triggered fresh warnings that it could shrink investment into British companies and risk undermining Labour’s wider pledge to grow the economy.
The leaked memo, sent to Chancellor Rachel Reeves in March ahead of the Spring Statement, calls for the complete removal of inheritance tax relief on certain Alternative Investment Market (AIM) shares.
While the relief was already halved in the Autumn Budget, Rayner’s suggestion would see it scrapped entirely, removing a key estate planning tool for thousands.
The memo received by the Telegraph said: “Shares designated as ‘not listed’ (notably AIM shares) receive 50 per cent relief (reduced from 100 per cent relief at Autumn Budget). Removing the relief completely for AIM shares could raise between £100m-1 billion per year.”
Wealth managers warn the move would “further narrow people’s financial planning options for mitigating future death taxes at a time when the net is closing in” with some investors relying on the relief to support long-term strategies for inheritance.
Jason Hollands, Managing Director at Evelyn Partners, said cutting the relief entirely could lead to business founders leaving the UK, relocating to more favourable tax regimes.
Although the plan is only one of several tax rises suggested by Rayner in her leeked memo, the impact could be significant
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He said: “Removing all IHT relief… would reduce a valuable source of funding for companies,” Hollands said, adding that 10 to 15 per cent of the affected shares are held specifically for their inheritance tax benefits.
Although the plan is only one of several tax rises suggested by Rayner, the impact could be significant. Amisha Chohan, head of small cap strategy at Quilter Cheviot, said the proposals would tighten the tax environment and could cause capital to “drift away” from listed UK businesses.
She warned that scrapping the relief risks distorting the market and penalising savers and business owners. By cutting this relief to just 50 per cent as proposed risks distorting the market in favour of unlisted investments, which are often “more opaque, illiquid and risky for ordinary investors”.
Chohan said: “This could drive capital away from listed UK growth companies, reduce the attractiveness of AIM, and ultimately work against the Government’s own goals of increasing transparency and stimulating domestic economic growth.”
Inheritance tax can be reduced by giving gifts – but rules do apply GETTYLaith Khalaf, of AJ Bell, noted that while the plan is not yet policy, it sends a message that Labour is open to more aggressive tax rises. He said the idea “would fly in the face” of recent efforts to support UK growth firms and keep business investment onshore.
Caire Trott, Head of Advice at St. James’s Place, echoed these concerns explaining that many investors build long-term strategies around tax reliefs, and sudden changes could cause “real headaches” for those trying to pass wealth on to the next generation.
Trott added that scrapping the relief may push savers toward riskier or less transparent assets, and would likely lead to a drop in capital flowing into small UK growth businesses.
Chohan added: “Those planning for retirement or trying to pass wealth on to the next generation should watch closely this could represent a major shift in how wealth is taxed in the UK.”
Rachel Reeves is attempting to navigate weak growth economy
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While Labour has not confirmed whether the proposals will be adopted, the memo has exposed growing pressure on Reeves to find new ways to raise revenue without relying on deep spending cuts.
With the Autumn Budget still months away, investors and financial planners are watching closely.
For many families and founders, the loss of this relief could mean higher taxes, fewer options, and more uncertainty about their financial future.
