As we approach the Autumn Budget that is due later this month, our Head of Tax, Cathy Revis, continues her no-nonsense tax talk with part 3, focusing on Inheritance Tax (IHT). Prioritising the facts and avoiding speculation, here is everything you need to know about what to expect on October 30th regarding IHT.
The current IHT landscape
While Labour has pledged not to increase Income Tax, NIC, VAT or Corporation Tax, it hasn’t ruled out raising wealth taxes, making IHT a likely focus in the upcoming Budget.
IHT currently affects only 5% of deaths, and it raises £7.5bn—less than 1% of total tax receipts. Compared to other G7 nations, the UK’s system is more generous, as we are 1 of only 3 OECD countries offering 100% exemption for family businesses. This leaves room for potential rule changes to increase tax revenue.
Labour’s position on offshore trusts
Labour has made a single official statement about IHT, pledging to end the use of offshore trusts to avoid IHT. On July 29th 2024, a policy paper clarified that tax breaks for non-doms would end, offshore trusts would be brought into the UK tax net and IHT would apply to all worldwide assets for residents of 10 years or more. These measures could significantly impact existing trusts and reduce the UK’s appeal to wealthy non-UK citizens.
Potential changes to business reliefs
There is growing concern over possible changes to Agricultural Property Relief (APR) and Business Property Relief (BPR), which cost the Exchequer £1.7bn annually. While Labour stated that APR will remain unchanged in November 2023, there’s uncertainty about BPR. Speculated reforms include:
- Capping BPR: A recent report suggested a £500k cap, potentially raising £1.4bn with no upper limit
- Tighter BPR criteria: Stricter rules could require a higher trading percentage or longer holding periods
- AIM shares: BPR on AIM-listed shares may be abolished, potentially saving £1bn
Further predictions
Various think tanks (Demos, the IFS and OTS) have suggested other potential changes, including:
- Increasing the main IHT rate (currently 40%)
- Introducing progressive rates for larger estates
- Abolishing reliefs in favour of a lower flat rate of 20% on both estates and lifetime gifts (maybe a bit radical, Cathy notes)
- Taxing lifetime gifts over £30k
- Removing CGT uplift on death if IHT relief is claimed
- Bringing pensions into the IHT net, which could raise £200m now and up to £1-2bn by 2030
And that’s all you need to know about the potential future of IHT! Keep an eye out for Cathy’s fourth tax talk where she will be discussing pensions and read her full analysis of IHT here.
Still unsure how the October Budget changes may impact your taxes? Contact Cathy Revis for more detailed business guidance on 02380 332 733 or email cathyrevis@fiandertovell.co.uk