Ahead of the Autumn Statement on 22 November 2023 (see our previous story), there has been much speculation in the media regarding possible changes to Inheritance Tax (IHT).
We have been here before with speculation about changes to IHT, or the possible introduction of some form of wealth tax. And whilst the former appears possible at some stage, the latter has already been ruled out by the two main political parties ahead of a general election in 2024.
The gist of the current speculation is that Prime Minister (and former Chancellor), Rishi Sunak, is reportedly considering reducing the rate of IHT with a view to eventually abolishing this tax altogether.
It is not clear at this stage if the current Chancellor, Jeremy Hunt, will say anything on the subject in the Autumn Statement, although he could raise IHT changes as an aspirational goal for the future.
So, whilst changes to the tax remain under consideration perhaps for the longer term, it is prudent to keep abreast of developments and consider the potential implications.
Based on what has been published so far in the media, an overview of what may be proposed is as follows.
Proposed Changes to Inheritance Tax
- Reduction and Abolition: One proposal is to reduce the current IHT rate of 40% for estates worth more than £325,000 and eventually abolish the tax altogether. This reduction could be introduced in a pre-election Budget, with a plan for complete abolition set for a future time.
- Political Implications: These potential changes can be seen as an aspirational offer to people ahead of a general election..
- Public Perception: IHT is perceived negatively by some as a form of double taxation, even though a relatively small (but increasing) number of estates currently pay the tax.
- Revenue Impact: The Institute for Fiscal Studies estimates that abolishing IHT could cost the Treasury around £7 billion annually, but this could be offset by other tax reforms.
Considerations for those who may be caught by IHT
- Stay Informed: Bishop Fleming keeps a close eye on developments regarding IHT and we will keep you informed. The proposed changes are still very much under discussion, and a timeline for implementation remains uncertain.
- Estate Planning: Regardless of potential tax changes, it is essential to have up-to-date estate planning in place. This should include wills, trusts, and other strategies to ensure your assets are distributed according to your wishes.
- Diversification: Consideration should be given to reviewing your assets and diversifying them to reduce any exposure to potential tax changes. This could involve investing in tax-efficient vehicles or gifting assets during your lifetime.
- Professional Advice: Always seek professional advice to help you navigate potential changes to IHT and tailor your finances accordingly.
- Charitable Giving: You can also explore charitable giving options as part of your estate planning, as charitable bequests can have favourable tax treatment and may align with your philanthropic goals.
One can view media speculation ahead of a fiscal statement as just that, speculation, with no substance. Whilst there may be no changes this side of a general election, there may be substantive proposals set out in party manifestoes.
Even if IHT was abolished on death, it is unlikely that there would be not some form of tax on changes in beneficial ownership of assets, for example capital gains tax on death (but with main residence exemption on the family home remaining).
Labour party proposals
Should there be a change of government after the next election, with Labour having control, Shadow Chancellor, Rachel Reeves, has proposed the following reforms:
- Closing IHT exemptions for agricultural / farming land.
- Ending business relief which exempts shares in an unlisted company or a significant interest in a business.
- Scrapping or reducing business asset disposal relief, which allows people who own more than 5% of a company to sell their stake and pay a lower tax rate. This relief was actually introduced in 2008 by Labour when Alistair Darling was the Chancellor, so it seems odd that they now want to change it..
Potential changes to IHT are generating discussion and the impact of any such changes will vary depending on individual circumstances. However, a well-thought-out estate plan allows for effective management of wealth to protect your legacy.
If you would like to discuss how tax changes may affect you and/or your business, please contact a member of our Estate Planning & Probate Team.