Jeremy Hunt is considering cutting inheritance tax in half in his autumn statement next Wednesday.
The chancellor is also looking at lowering taxes for small businesses after official forecasters told the Treasury it has more money in the budget than was expected.
Higher tax revenues and lower borrowing costs have given Mr Hunt more than £20bn extra – over triple the amount in March’s budget, according to reports.
Mr Hunt has come under mounting pressure from right-wing Tory MPs to cut taxes, with the overall tax burden at a post-war high and economic growth flatlining.
Treasury sources confirmed to The Independent that cutting inheritance tax and taxes for small businesses is under consideration.
The chancellor will get final forecasts from the Office for Budget Responsibility on Friday night and make a final decision at the weekend ahead of Wednesday’s statement.
One option includes halving the rate of inheritance tax. It is currently charged at 40 per cent on estates worth more than £325,000, with an extra £175,000 allowance for estates passed on to children or grandchildren.
The Treasury is reportedly considering cutting the rate to 30 per cent and increasing the threshold at which it kicks in, though a source said changes to inheritance tax could be pushed back to the budget next spring.
Another option being looked at by the chancellor is increasing the threshold at which firms businesses pay from £85,000 to £90,000, The Times reported.
Mr Hunt has repeatedly rebuffed calls from the right of the Tory party to cut taxes, arguing that to do so would fuel inflation.
But, after the rate of inflation dropped by more than expected this week to 4.6 per cent, he came under increasing pressure to use the flexibility to lower taxes.
Mr Hunt is thought to believe an inheritance tax cut would not fuel inflation, while also being significantly cheaper than a cut to income tax.
Despite inheritance tax being viewed as widely unpopular, just over one in 20 estates in the UK pay the levy.
Were Mr Hunt to cut the rate next week, he would try to pitch it as aspirational, while Labour would likely attack it as a bung to the rich.
The Conservatives are reportedly planning a pledge to abolish inheritance tax altogether in their next election manifesto.
Next week, Mr Hunt could also extend “full expensing”, a way for firms to offset their investments against corporation tax payments.
It comes as Mr Hunt and work and pensions secretary Mel Stride unveiled a major benefits crackdown, which will see claimants lose handouts, such as free prescriptions and dental care if they refuse to take a job.
The chancellor said the move, launched just days before the statement, was necessary to stop “anyone choosing to coast on the hard work of taxpayers”.
But the executive director of campaign group Tax Justice UK said Mr Hunt was “taking from the poor to give to the rich”.
“The savings from this cut to benefits is about the same as the cost of the rumoured cuts to inheritance tax,” he added.
