With the 2024 Autumn Budget just around the corner, we’re taking a closer look at how it might affect Inheritance Tax (IHT) and what this could mean for you.
Inheritance Tax has been making headlines lately, with the latest figures showing the UK is on track for another record year of tax receipts.
HM Revenue and Customs (HMRC) collected £3.5 billion in IHT between April and August 2024, £300 million more than the same period last year.
The steady increase is mostly due to frozen tax thresholds, which are dragging more estates into the IHT bracket as property and asset values rise.
In the 2024 financial year alone, a staggering £7.5 billion was raised through Inheritance Tax, and with these soaring numbers, many expect the Chancellor to focus on IHT as a key issue in the upcoming budget.
What’s happening with IHT right now?
Currently, IHT is set at 40 per cent on the value of estates exceeding £325,000.
But what if the Chancellor raises the rate or lowers the threshold?
This could lead to a greater portion of estates being taxed, potentially leaving beneficiaries with less than anticipated.
Could exemptions be reduced?
Several exemptions help to reduce the impact of IHT, including those for agricultural land and family businesses. But what if these exemptions were cut back or removed?
This could mean that assets that were once protected could now be taxed, leading to higher tax bills for estates, particularly affecting families with long-held ties to agricultural land or small businesses.
Will the seven-year gift rule change?
Currently, gifts made more than seven years before someone’s death are exempt from IHT, but what if that window is shortened?
If the gift period is reduced, more gifts could fall under IHT rules, increasing the tax burden for those who’ve passed on assets to their family members in recent years.
Is the spousal exemption at risk?
Transfers of assets between spouses or civil partners are currently exempt from IHT.
But what if this exemption is scaled back or removed altogether?
Such a change could make estates liable for IHT when passing assets between partners, creating additional financial stress for surviving spouses and their families.
Will the nil-rate band stay frozen?
The nil-rate band, the threshold above which IHT is charged, has been frozen at £325,000 for some time, despite rising asset values.
If it remains frozen, or worse, is lowered, many more estates could find themselves subject to IHT, as inflation pushes their value above the threshold.
While these are just possibilities, they highlight the potential changes to Inheritance Tax that could come with the 2024 Autumn Budget.
As tax receipts continue to climb, the likelihood of reforms is growing. We’ll be keeping an eye on developments as Budget Day nears.
If you’d like advice on IHT or how to prepare for the Budget, please get in touch.
