Inheritance tax cut on the cards
The Prime Minister Rishi Sunak is said to be considering cutting Inheritance Tax (IHT) ahead of the next general election in 2024.
According to a report first published by financial news site Bloomberg, Sunak is considering a cut to IHT alongside other potential tax cuts in order to garner more public support ahead of a new election campaign. There is however little detail on the proposed cut and what it might contain.
What might an IHT cut contain?
The number of households liable to IHT has slowly crept up over a decade, mainly thanks to the threshold staying at £325,000 since 2009. This means that property values which have risen naturally over time have tipped homeowners over the threshold, resulting in more estates being subject to larger IHT bills. The basic 40% IHT rate has also remained the same for some time. As such, these two aspects of the tax could be the chief target of a change, either with a cut to the rate or lifting of the threshold.
IHT is one of the most disliked taxes in the country, aside from the fact it is payable when someone dies, chiefly because it is seen as taxing assets and income that have already been heavily taxed along the way in life. Cuts to the tax would be a popular move. Research from legal firm Kingsley Napier found that three in five Brits (63%) support increasing the allowance, while nearly half (48%) would be in favour of abolishing the tax, which brought in £6.1 billion to HMRC last year, altogether.
Complexity
IHT was the subject of a review by the Office of Tax Simplification (OTS) in 2018. However, the main findings of this were that the process of IHT was too onerous for families and the administration should be simplified. The Government however rejected the changes in 2021.
Other potential changes could include the rules around gifting, the residence nil rate band – currently £175,000, and other aspects of the tax. It is however unlikely that we’ll see IHT cuts imminently. There are two key opportunities for the Government to make such a move, this Autumn in its financial statement update, or in the 2024 Spring Budget. This is open to political speculation and is dependent on how the economy fares this year. Government borrowing has already come in less than expected in the past 12 months, which suggests Chancellor Hunt could have more room for manoeuvre come his next financial update.
Ultimately, much will depend on the polls and whether the Prime Minister thinks he could win next May (a typical time of year to hold the general election) or wait until the last opportunity of December 2024.
Either way, the key message for anyone thinking about planning their wealth for the long term is to have a strong plan in place for any outcome. As the goalposts move, having access to key advice for structuring your wealth is critical for positive lifelong outcomes.