The Labour Party is looking into potentially reducing the Inheritance Tax threshold from £475,000 to £125,000 in a bid to raise revenues should it win a future election.

Shadow chancellor John McDonnell said the party was exploring ways the system could be updated. He added that a future Labour government would be interested in introducing a lifetime gifts tax that could replace the current inheritance tax system.

“We are looking at it,” Mr McDonnell told Sky News, “I think it’s interesting, we need to have a fairer system of how we can ensure that wealth is more fairly distributed.”

A report commissioned by the party suggests Labour’s plans to remove inheritance tax breaks for main residences would be an “important interim step”.

It also recommended the introduction of a tax for equity withdrawals, which it suggests is a “key means of avoiding inheritance tax”.