With the Autumn Budget date set for 30th of October 2024, there is mounting speculation about changes to Inheritance Tax (IHT) and other tax structures. Business owners and affluent individuals will likely be impacted the most, by reforms aimed at increasing tax revenue.
Despite the pledge to keep Income Tax and National Insurance fixed, the threat of tax rises is a likely attempt to address the ‘£22 billion black hole’ in national finances mentioned by the Chancellor.
Inheritance Tax Overview and Current Reliefs
Inheritance Tax (IHT) is a tax on the estate (property, money, and possessions) of someone who has passed away.
There’s normally no inheritance tax to pay:
if the value of the estate is below the £325,000 threshold
if everything above this amount is left to a spouse, civil partner, a charity, or a community amateur sports club.
For estates exceeding the £325,000 threshold, IHT is charged at the 40% rate. However, by understanding and utilizing the available tax reliefs, you can protect your wealth to ensure your beneficiaries are faced with minimal tax burdens.
Key Inheritance Tax Reliefs to Consider
To minimize your inheritance tax liability, it’s essential to make the most of current reliefs before any Budget changes come into play.
Here are four key reliefs and allowances that could make a significant difference in your estate planning:
For business owners, Business Property Relief can significantly reduce or eliminate IHT on qualifying business assets. BPR provides up to 100% relief on the value of shares in unlisted trading companies and 50% relief on business property such as machinery or land.
Why act now? If changes are made to this relief in the Autumn Budget, you may face higher tax liabilities when passing on business assets.
Trusts offer a flexible way to manage your wealth and protect it for future generations. Assets transferred into certain types of trusts such as Discretionary Trusts, Absolute (Bare) Trusts and An Interest In Possession Trust (IPDI), can help control when and how beneficiaries receive their inheritance. Each type of trust has a completely different tax treatment, it is imperative that you speak with a trust specialist for this type of tax planning.
Why act now? Trust rules may become more stringent or subject to higher taxation following the Budget, so establishing or reviewing trusts now could ensure you maximize their tax benefits.
Making Lifetime Gifts can help reduce the value of your estate and potentially remove assets from the IHT calculation altogether. The seven-year rule means gifts given more than seven years before your death are exempt from IHT. Additionally, you can give away £3,000 each tax year without incurring any IHT liability.
Why act now? Changes to gift exemptions could increase the tax burden on gifts made in the coming years, so it’s wise to make tax-efficient gifts before the Budget reforms.
How the 2024 Autumn Budget May Affect Inheritance Tax
The 2024 Autumn Budget is expected to bring about significant tax changes aimed at increasing revenue to address fiscal deficits. This may include freezing IHT thresholds, reducing or removing key reliefs such as BPR or APR, and potentially reforming the way gifts and trusts are taxed.
Business owners and those with large estates may be particularly affected if these reliefs are scaled back or thresholds are left unchanged despite rising asset values. Adapting your financial plan in line with the changes can help protect your estate and ensure you’re not setback from achieving your goals.
What You Should Do Next
With uncertainty looming over the 2024 Autumn Budget, the best course of action is to review your estate and financial plan as soon as possible.
Whether you’re a business owner looking to preserve your company for future generations, or an individual seeking to protect your family’s inheritance, taking advantage of current tax reliefs ahead of expected changes could help mitigate financial setbacks.
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Disclaimer:
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As is the very nature of investing, there are inherent risks, and the value of your investments will both rise and fall over time. Please do not assume that past performance will repeat itself and you must be comfortable in the knowledge that you may receive less than you originally invested.
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