People are asking me nervously about Rachel Reeves potentially changing inheritance tax rules - here's what she might do

At its most basic, raising inheritance tax could just mean increasing the rate from 40 per cent to something like 45 per cent or 50 per cent.

This won’t affect you unless you’re likely to have one of the 4 per cent of estates that currently pay this tax. However, there are a couple of things that make this a less likely choice.

The very fact that so few people end up paying it means it wouldn’t necessarily raise a vast amount of money.

It would also mean very wealthy people faced a bigger bill - and if you hit the wealthy too hard, they have the resources to pay for the kind of expert help that can ensure they don’t pay any more tax at all. So it might not work for the government’s needs.

Around 96 per cent of people don’t end up paying inheritance tax at the moment because their estate falls within allowances and exemptions. It means there’s a reasonable chance the government will revisit at least one of these. The nil rate bands do much of the heavy lifting in protecting smaller estates.

The first £325,000 of all your assets fall into the nil rate band, so you don’t pay tax on it. If your assets include a home that you’re giving away to children or grandchildren, you also get a £175,000 residence nil rate band, so you can give away property up to this value and pay no inheritance tax. These could be reviewed, and become decidedly less generous.

At the same time, anything you leave to your spouse or civil partner is entirely free of inheritance tax, and if you pass everything to them after your death, you also pass your nil rate bands, so when the second person in a married couple dies, they can leave assets worth up to £1 million completely free of tax.

Tweaks to any of these rules can’t be ruled out, which is understandably unsettling. However, before you panic, it’s worth highlighting that they’re far from the only options on the table.

Touching nil rate bands or the rules around married couples would cause a massive political backlash – which would create issues for years, as tales emerged of bereaved spouses being forced out on their ear by HMRC. There are other allowances they could revisit which might be less politically dangerous.

There are specific types of relief available to farmers and owners of family businesses – worth £4.4 billion in 2021/22 (the most recent year we have data for).

Agricultural relief protects family farms, which the government would need to consider carefully, but it might choose to apply it to fewer assets and under more limited circumstances. Business property relief benefits family firms passing assets down the generations and some shares listed on the alternative investment market, so the government could squeeze this by limiting the assets it applies to or cutting the relief – without touching most people. However, it would need to take care not to damage investment in small businesses or hurt family firms.

It might also look at the tax treatment of investment and pensions on death. At the moment, money in a defined contribution can be passed on free of inheritance tax. Meanwhile, if you pass on investments outside an ISA or pension, no matter how much money you’ve made on them, there’s no capital gains tax to pay – so it effectively resets to zero.

Making changes to these things would be a horrible blow for people who have considered their pension as a tax planning opportunity. But given how many people plan to spend their pensions in retirement, it may not spark too much unease. It will also be bad news for those sitting on their capital gains.

However, if they have invested in stocks and shares, they will still be able to realise their gains gradually over time and pay no tax on them – especially if the government can be persuaded to reverse the cuts to the annual CGT allowance. They can also gradually move them into stocks and shares ISAs using the bed and ISA process each year, so there’s no CGT to worry about in future.

We can’t be certain the government will take these paths of least resistance – rather than tweaking the nil rate bands - so if you’re still worried, you can give some money away now, before the change. You can take advantage of your annual gift allowance, and give up to £3,000 away each year.

You can also give away larger sums and they will be considered as being outside of your estate after seven years. This makes sense if you were planning to give this money away anyway, and you can afford to part with it.

Giving with a warm hand rather than a cold also ensures you’re around to see your family make the most of this money. If you have children in your life who are under the age of 18, you could consider paying into a Junior ISA for them. This is counted as being given away immediately for inheritance tax purposes, but is tied up until they reach the age of 18, at which point they can make sensible adult decisions with the money.

If making gifts now risks leaving you falling short, the potential tax saving shouldn’t guide your decision making. Instead, you can take comfort from the fact that given how small these annual gifting allowances are, tinkering with them at this stage might raise very little tax - at the expense of upsetting everyone who wanted to use them. The government might decide it’s not worth it. If the gift allowance remains after the Budget, then you can make your gifts then, when you know where you stand.

If something was wrong for you yesterday, it doesn’t suddenly become right for you because you’re worried about tax. It means that while we might all benefit from considering the potential tax risks, and using the opportunity to do some sensible planning, none of us will benefit from panicking and rushing into a mistake.

The state pension

This week it emerged that wages including bonuses rose 4 per cent in the 12 months to May-July, so thanks to the triple lock, the state pension is likely to rise 4 per cent in April - to around £11,962.

The increase will take the full state pension to just shy of £12,000 next year, closing in on the £12,570 personal allowance. Given that the freeze to this threshold is expected to remain in place until 2028, it raises the spectre of the full state pension alone taking pensioners over it and into the realms of paying income tax during the next few years.

For those who have saved for the future, paying tax on income in retirement is nothing new, but the principle of paying tax on the state pension is still very unwelcome.

It’s just one reason why we need to see the state pension and the triple lock’s role form part of the government’s forthcoming pension review.

People need certainty of what they will receive from the state – and when – in order to make sensible plans for their retirement.