Rachel Reeves warned inheritance tax raid is major 'error' as only the middle class will be hit - 'It won’t raise much more!'

However, wealth advisers caution that such moves could unfairly target average families whilst raising minimal revenue. Tim Stovold of Moore Kingston Smith described inheritance tax as "desperately unpopular" and "not well-directed".

These potential alterations come as part of what's been described as "the biggest tax raid in history" planned for the October 30 Budget.

Critics argue that simply lowering the IHT threshold without addressing wider complexities would be "lazy policymaking" and a "tax grab" with far-reaching consequences for families.

Currently charged at 40 per cent on assets above a £325,000 threshold, the tax affects around four per cent of deaths.

With the average UK house price at £293,000, ordinary families are increasingly at risk of being caught by the levy, especially if Labour lowers the thresholds.

Britain has Europe's highest inheritance tax rate at 40 per cent. The levy currently raises about £7billion annually for the Treasury.

Government figures show that increasing the headline rate by one percentage point would only raise £80million in 2025-26, compared to £6.2billion from a similar income tax increase.

Critics warn that while middle-class families might struggle to avoid the tax, the ultra-wealthy could exploit loopholes.

Stovold said: "The super-wealthy who can afford armies of wealth advisers can wrap up assets in trusts. It will probably be politically motivated rather than a revenue raiser.

"Labour may choose, for example, to apply a 50 per cent levy on larger estates, but people with this level of wealth will plan around it. In terms of raising revenue, it’s almost a rounding error. Even squeezing the pips with substantial reform won’t raise much more."

Reeves is reportedly considering several changes to inheritance tax. These include raising the headline rate, lowering the threshold at which tax becomes payable, and adjusting exemptions and reliefs.

One potential target is the rule allowing tax-free gifts if given seven years before death.

Changes to exemptions for businesses and farmland are also under consideration.

The Chancellor is widely expected to increase capital gains tax and employers' National Insurance contributions as well.

Sir Iain Duncan-Smith told The Independent the tax would "punish ordinary people who have worked hard".

Jason Hollands of Evelyn Partners also warned that changes could drag more middle-earners into paying the tax.

He noted: "It's the heirs who are often not wealthy who get clobbered by the tax."

Dan Neidle, tax expert, highlighted the emotional resonance of inheritance tax, stating that "even when people are told that the tax largely affects millionaires, they still hate it".

John O'Connell of the TaxPayers Alliance urged Reeves to "immediately rule out raising the hated death tax", arguing it leaves grieving families with huge bills at the worst possible time.

As it stands, the nil rate band, which is the amount people can pass onto their loved ones without paying any inheritance tax, is £325,000.

The decision by the Government to freeze this figure until 2028, rather than increase it in line with inflation, means that many people have found themselves caught in the inheritance tax trap for the first time.