We are moving closer to the October Budget. Prime Minister Sir Keir Starmer and Chancellor of the Exchequer Rachel Reeves are still preparing the country to expect ‘difficult decisions’ in a ‘painful’ budget.
Callum Rowe (Trainee Private Client Adviser) focuses on IHT, its current framework and how it could change in the final article of our pre-Budget mini-series.
It is important to note that the following points from all commentators are views and thoughts on areas the Labour government may or may not review in the upcoming Budget. These are not based on current legislation, or on factual information. We do not advise acting on this information – instead, please speak to your Courtiers adviser or contact us.
There is a lot of uncertainty and ambiguity about the proposed IHT changes. We’re sure our clients have heard some of the same rumours we have. For now, we will continue to monitor the situation and hope that any significant changes will be introduced with enough time to plan for them.
The current framework around IHT:
Frozen until 2028, there is currently a £325,000 nil rate band per person, with an additional £175,000 residence nil rate band if the main residence is to be inherited by a direct descendant. Spouses can pool their allowances together, creating a £1,000,000 allowance before IHT is due. After this, there is a 40% charge on assets.
What could change?
With only 4% of people currently paying IHT, Labour’s challenge will be either to increase the quantity of people paying IHT or increase what each estate pays. While the 40% headline rate may not change (it is already one of the highest tax rates in the UK), many speculate that Labour will reduce certain allowances and reliefs. This could mean the Chancellor introducing a cap on business property relief (BPR) and agricultural property relief.
BPR offers 100% relief from IHT if you’ve held interest in a business for two or more years. It also applies to shares in unlisted companies and includes alternative investment market (AIM) shares. Removing or capping BPR could mean these investments become subject to IHT.
Other measures that may be introduced include:
- Including pension funds into a taxable estate upon death. This could go as far as introducing a new pension nil rate band, akin to the residence nil rate band. There may also be spousal transfer exemptions.
- Introducing progressive and tiered rates following the same model as income tax (see our recent CGT article).
Example for illustrative purposes only: charging an estate between £325,000 and £500,000 at 30%, then charging an estate between £500,001 and £1,000,000 at 40%. - Labour could also revamp gifting and potentially exempt transfers (PETs). Currently gifts made seven years before a person’s death are IHT exempt. Changes to PETs may mean introducing a charge on lifetime gifts. For example, taxing gifts over a certain size. A previous report in 2020 proposed a 10% charge on gifts over £30,000 or introducing a gifting lifetime limit.
If you would like to discuss any of the above, please get in touch with your Courtiers Adviser.
Working with Courtiers
This is why it’s beneficial to work with Courtiers in the run up to the Budget, and after. We can help support you and your wealth in the following ways:
- Ensuring we have strategies in place to deal with and respond to any changes.
- Taking all necessary steps to keep your wealth protected while adhering to legislation.
- Offering continued and up-to-date advice to support your financial decisions.
- Offering you bespoke product advice based on your specific needs.
Conclusion:
We are monitoring developments in the background, and when we know what will happen for definite, we will pass this information on to you. For now, we will adhere to current legislation while focusing on the best course of action.