Budget Speculation: Upcoming Changes to Inheritance Tax
Partner, Private Client
Two weeks to go until the Autumn Reveal! Budget Speculation: how Inheritance Tax may change
In the second of our series by our specialist estate planning team, we look at the possible changes the Government may announce to Inheritance Tax (IHT) as part of their autumn budget on 30 October.
There is definitely speculation about potential changes to IHT. We have not seen major change since 2017. But what could happen now?
What is IHT?
IHT is calculated at the time you die, and is (usually) paid from our probate estate before the beneficiaries receive their entitlement. Sometimes, if gifts have been made within 7 years before death, those who received the gifts need to pay IHT.
When does IHT apply?
IHT will be payable if a probate estate is valued over a certain amount. This takes into account the type of assets, and the types of liabilities that can be offset. As above, it also takes into account any gifts, transfers of assets that have taken place during the lifetime of the person has died. We refer to 7 years, but in some cases a gift that is made (for example with a benefit reserved) could go back further.
The rates can be complex (40% or 36% where charitable legacies of a certain amount are in a will).
The tax free allowance (nil rate band) can also vary; if you have spouse, if you have property and if you are the 2nd in a marriage to die – this does depend upon who inherited on the first death.
What changes could be made?
Changes to the current nil rate bands are possible; perhaps be reduced (i.e. the starting point at which IHT is paid become less), or maybe just made more simple.
The gifting rule and 7-year rule; there are various ways in which this could be changed, making lifetime planning more tricky.
Currently, pension funds do not form part of the probate estate for IHT calculations. There has been talk that this could change… this will make a significant difference to those planning their wills with this in mind.
Alterations to reliefs such as business property relief or agricultural property relief are possible. These reliefs are currently applied generously but this may not remain the case.
We may also see changes to the interaction between Capital Gains Tax and Inheritance Tax on death.
What does this mean for you?
How the changes may impact you will depend greatly on your personal and financial circumstances. Just as each individual is different, so is each estate. We recommend you take advice when estate planning and seek assistance if you are an Executor or Administrator looking to navigate the situation following the death of a loved one.
Our team of experts here at Giles Wilson can assist with both lifetime planning matters and estate administration.
