The Tax Dividend
Chancellor Rachel Reeves has promised not to change three big taxes we pay – but she has made no such promise about Inheritance Tax (IHT).
Even without these changes, she is guaranteed a rising stream of income. The basic threshold for IHT has not changed since 2009, and other thresholds have stayed the same since their introduction. So IHT raised a record £7.5 billion in 2023/24, up 6% on the year before and double the amount ten years earlier. By 2028/29, with the allowance still frozen, it’s forecast to rise to £9.7bn, nearly 30% up in five years. That figure will keep on growing as house prices increase, because it’s the home we live in that is most likely to put estates into Inheritance Tax territory.
Free guide to saving Inheritance Tax
Meanwhile, Reeves has other changes in mind. Labour’s election manifesto promised to “end the use of offshore trusts to avoid Inheritance Tax”. That’s not something most people do, but there is another IHT exemption – relevant to lots more people – that a top tax accountant suggests to me Ms Reeves might be eyeing up. At the moment you can give any amount to your heirs entirely free of IHT as long as you live at least seven years after making the gift. This is an unlimited allowance and used by people rich enough to have significant free assets they can give to their children or grandchildren while still in good health. The government may cap this exemption and make lifetime gifts above that threshold liable for full IHT.
Another tempting target costing over £4 billion a year between them are Agricultural Property Relief and Business Property (mainly unquoted shares) Relief, allowing both to be left free of IHT.
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There was also no promise not to raise Capital Gains Tax, which is currently charged at much lower rates than tax on incomes. The Government will close one loophole that allows some speculators to pay Capital Gains Tax rates on income, but it may go further. If you have property apart from your main residence that you want to sell, it may be worth doing that sooner rather than later. Any changes made in the autumn Budget – expected September – may come into effect at once
QUESTIONS? Send any questions to Paul.Lewis@radiotimes.com. I cannot answer you personally, but I will reflect them in this column