Inheritance Tax (IHT) – Chancellor’s next target?
Reports suggest Chancellor Rachel Reeves is looking at targeting inheritance tax in the Autumn Budget as a way of raising revenues while avoiding a breach of her fiscal rules (fiscal gap of £40–50bn). In practice, there are a number of changes she could introduce — but it remains questionable whether they would make any meaningful dent in the government’s wider fiscal position.
Background:
- Current Thresholds: IHT applies to estates valued above £325,000 (nil-rate band), with additional relief for main homes (Residence Nil-Rate Band). This threshold is frozen until at least April 2030.
- Gifting & Potentially Exempt Transfers (PETs): Gifts are exempt from IHT if the donor survives 7 years after making them. Taper relief reduces the tax due on gifts made 3–7 years before death. Small gift exemptions exist: £3,000 annual allowance, and gifts on marriage/civil partnership — but these allowances haven’t increased in 40+ years.
- Already Announced Changes (from October 2024 Budget): Unutilised pension values will become liable to IHT in the next two years. AND Agricultural and business assets will also become subject to IHT over the same period.
Chancellor Rachel Reeves can potentially:
🔹 Increasing the headline rate of IHT above 40% but only 10% of the estates pay IHT
🔹 Lowering the nil-rate band threshold (£325,000 since 2009) to bring more estates into scope, however this will be very unpopular
🔹 Lifetime cap on gifts with tax over this limit could be one option to limit succession planning without paying IHT
🔹 Extending the 7-year gifting rule to 10 years
🔹 Reducing the taper relief available on lifetime gifts
But here’s the reality:
- How Many Estates are Affected: Even with these changes, 90%+ of estates will not be liable to IHT.
- Revenue from IHT: Current IHT receipts: £7–8bn per year. This is expected to rise to about £13bn by 2028–29 with the new pension/agricultural/business asset rules. But that still represents only ~1% of total government tax revenues.
- Political & Administrative Concerns: Extending IHT to lower-value estates (say, £100k–125k+) would be politically damaging and administratively burdensome for HMRC. IHT is already considered one of the UK’s most unpopular taxes.
👉 Yet, IHT may be easier than increasing personal tax or VAT and hence the speculation alone is causing many families to re-evaluate their succession and legacy planning.
At Finawis Advisors – Private Wealth Legal Advisory, we help individuals and families plan ahead of policy shifts. Whether through trusts, Family Investment Companies, or structured gifting, there are strategies to protect your estate against future tax rises.
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