Rachel Reeves has been warned that her planned inheritance tax raid will not raise money and will increase bureaucracy for thousands of bereaved families.

The Chancellor is understood to be considering extending the current “seven-year” rule – under which gifts can be passed on free of inheritance tax – to 10 years.

However, economists from across the political spectrum and analysis from within the Treasury itself, say the move would entail much higher levels of administration which would lower the amount that could be raised for the Treasury.

One said the move was “unlikely to raise additional revenues”.

Ms Reeves has already been warned that other Budget plans – such as reforms to tax on non-doms and increasing capital gains tax too much – will be unlikely to raise cash.

It came as senior Labour figures urged Ms Reeves to go much further and replace inheritance tax altogether with wealth taxes payable over a lifetime.

Andy Burnham, the mayor of Greater Manchester, said such a plan could unite Left and Right if it were replaced by a more progressive property tax.

The Telegraph revealed last week that Ms Reeves wants to use the Budget to raise up to £35 billion in taxes, with another £5 billion or so coming from spending cuts.

The Labour manifesto promised that the party would “not increase taxes on working people” and Ms Reeves now appears to be struggling to raise enough within those constraints.

On Sunday Wes Streeting, the Health Secretary, suggested that when Labour said they would not put up taxes on working people, it might not mean those on six-figure salaries.

Several Cabinet ministers have also written to Sir Keir Starmer to complain about the cuts their departments face in the Budget.

On Monday, a major new analysis warns that the Budget risks creating one of the most “anti-growth” tax systems in the developed world.

A joint study by the US Tax Foundation and the UK’s Centre for Policy Studies said that if the Chancellor increases capital gains tax as expected, Britain would have one of the least competitive tax systems in the OECD.

The Chancellor is also expected to target inheritance tax in the budget by attempting to raise £1billion by removing exemptions for businesses and agricultural land.

She is also looking at extending the time a person must survive after giving a gift before it is free of inheritance tax. At present, gifts given to heirs are only charged the tax if the donor dies less than seven years later.

Ms Reeves hopes to raise more money by increasing the time limit to 10 years.

Nullifying the change

However, Maxwell Marlow, director of research at the Adam Smith Institute, said: “Extending the time allowance from seven years to 10 is unlikely to raise additional revenues, as life expectancy amongst higher-income households continues to grow.

“Gift-givers will likely just grant gifts three years earlier than intended, thus nullifying the change.”

It is understood that Ms Reeves is looking at a report from the now-defunct Office for Tax Simplification, which in 2019 laid out a series of ideas on how to reform inheritance tax.

But its report actually warned against an extension of the seven-year rule – saying it should in fact be cut to five years.

It said a cut was required because people do not have records going back as far as even five years, making administering the tax very difficult.

They pointed out that just £7 million of the £4 billion inheritance tax is related to gifts made over five years before death because the percentage of tax the Exchequer takes has also been tapered down.

In addition, the All-Party Parliamentary Group on Inheritance and Intergenerational Fairness concluded that while it was likely that many gifts are given more than seven years before death, it was impossible to know how much.

Its chairman, former Tory MP John Stevenson, said: “I would question whether this would raise any additional revenue of any consequence.

“It would create new regulatory burdens because people would have to keep records of these gifts.

“Inheritance tax is already too complicated. This would make it worse when we should be looking to simplify it. We came up with the idea of a lifetime tax which would have eliminated all these requirements.”

Last month, the Institute for Fiscal Studies also cautioned against the move.

Arun Advani and David Sturrock wrote that extending the time allowance could increase the “perceived unfairness” of the tax because wealthier people could simply move their gift-giving to earlier.

In a report published last month, they said: “The look-back period may even increase the perceived unfairness if it extends to a period that covers these major gifts for only some people, depending on how long they survive, both because of the randomness of who ends up paying and because less well-off individuals tend to die earlier and so are likely to have more of their gifts be taxable.”

The Resolution Foundation, a Left-wing think tank, said that extending the period would lead to more red tape and that some of the wealthiest people would find a way to avoid it.

“One option would be to expand this period (say to 10, 15 or 30 years) but this would require more administration and uncertainty – given that it is not known at the time of giving whether tax will be payable or not, and gifts need to be accounted for retrospectively – and would in turn be circumvented by the wealthiest,” they said in a report.

The think tank has also said it wanted the current inheritance tax system to be “ripped up” and replaced with a new one that levies tax on individual heirs, not estates.

Under the plan, there would be a lifetime tax-free gift allowance of £125,000, with 20 per cent tax paid on receipts above that up to £500,000.

After £500,000, the tax rate would be increased to 30 per cent. In addition, there would be an annual gift allowance of £3,000. The plan was drawn up by its former director Torsten Bell, who is now a Labour MP.

Other figures on the left called on the Chancellor to be more radical on inheritance tax.

Mr Burnham said income tax should be replaced with a land value tax – an annual levy based on a percentage of a property’s value.

“We could come up with a proposal where Left meets Right on this,” he said. “You could abolish inheritance tax and replace it with a new system of land and property taxation.

“The Right would welcome the abolition of inheritance tax and the left would welcome people in the largest homes paying council tax based on 2024 property prices rather than 1991 prices.

“The situation at the moment is that you can be paying much more council tax in a Band D house in Greater Manchester than in some of the very wealthiest parts of London.

“This reform could be part of a new system of land value taxation, which could senationale the vast majority of people paying less than they are currently paying in council tax. It would also end land banking, which is slowing down housebuilding.”

Rachael Maskell, a Labour MP, said: “The comprehensive spending review will be the opportunity for Rachel [Reeves] to undertake more in-depth reform.

“There is an inequity about those who inherit an estate or are gifted it in advance, and likewise the thresholds for inheritance tax may well need to be revised if greater revenue needs to be generated.”