Inheritance Tax Changes in Budget 2024: What You Need to Know

Chancellor Rachel Reeves is set to announce significant changes to inheritance tax (IHT) in the upcoming Budget on 30 October 2024. The proposed reforms aim to raise up to £40 billion through tax hikes and spending cuts, potentially impacting how families manage their estates and inheritances.

Key Takeaways

• Inheritance tax currently stands at 40% on estates valued above £325,000.

• The threshold has been frozen since 2009 and is expected to remain until 2028.

• Only about 4% of estates currently incur inheritance tax, raising approximately £7 billion annually.

• Proposed changes may target exemptions and reliefs, particularly affecting wealthy families.

Overview Of Inheritance Tax

Inheritance tax is levied on the estate of a deceased person, with the first £325,000 exempt from tax. Anything above this threshold is taxed at 40%. Notably, assets left to a spouse or civil partner are exempt from inheritance tax, which has been a significant relief for many families.

Proposed Changes

The government is reportedly considering several changes to the inheritance tax system, including:

• Revisiting Exemptions: The spousal exemption, which allows estates to pass tax-free to a partner, is under scrutiny. This exemption accounted for £15.5 billion in tax-free transfers in 2020-21.

• Lifetime Gifts: Currently, gifts made more than seven years before death are exempt from inheritance tax. Changes may alter this rule, potentially increasing tax liabilities for families.

• Business and Agricultural Relief: These reliefs allow family businesses and farmland to be passed on without incurring tax. Any changes could significantly impact rural communities and family-owned enterprises.

Public Sentiment

Public opinion on inheritance tax remains largely negative. A recent YouGov poll indicated that only 27% of respondents support a rise in inheritance tax, while 60% oppose it. Critics argue that the tax disproportionately affects those who have worked hard to save for their families.

Political Reactions

The proposed changes have sparked criticism from various political figures. Shadow Chancellor Jeremy Hunt has warned that the tax hikes will burden ordinary families who have saved diligently to provide for their loved ones. Former Tory leader Iain Duncan-Smith echoed these concerns, stating that the changes would unfairly penalise hardworking individuals.

Conclusion

As the Budget approaches, many families are left anxious about how these potential changes could affect their financial planning and inheritance strategies. It is advisable for individuals to seek independent financial advice to navigate the complexities of inheritance tax and to prepare for any forthcoming reforms that may impact their estates.

Sources

• Budget 2024: Inheritance tax set to rise – here’s what it means for you | The Independent, The Independent.

• Inheritance tax to rise in Budget as Reeves plans to hit well-off | The Independent, The Independent.

• Subscribe to read, Financial Times.

• Rachel Reeves considers £15bn inheritance tax raid on grieving families | UK | News | Express.co.uk, Daily Express.

• Inheritance tax raid: Rachel Reeves to hike 'most unpopular tax' in upcoming Budget, GB News.