Increase in inheritance tax collections by 10% noted before the Autumn Budget concludes
News Article: Upcoming Changes to Inheritance Tax Exemptions
The upcoming Budget is set to propose significant changes to the inheritance tax (IHT) exemptions, with the primary focus being an extension of the gifting exemption period and the introduction of a lifetime gifting cap.
Extension of the Exemption Period for Lifetime Gifts
Currently, gifts made by individuals are exempt from IHT if the donor survives for seven years after making the gift. There are rumours that this period could be extended to ten years in the new Budget, making it more challenging to pass wealth tax-free during a lifetime.
Introduction of a Lifetime Gifting Cap
There is speculation that the government may introduce a cap on the total amount that can be gifted tax-free over a lifetime. Gifts exceeding this cap could become subject to IHT on the donor’s death, potentially increasing tax liabilities for heirs.
Annual Exemption Amounts
The £3,000 annual exemption per person and small gift exemptions (like £250 per recipient) could be confirmed or slightly increased, providing some relief for individuals looking to pass on assets tax-free.
Business and Agricultural Relief Exemptions
The £1 million cap on Business and Agricultural Relief exemptions remains in place until at least 2029/30 but may be reviewed for Consumer Price Index (CPI) increases thereafter. Additionally, the Budget confirms interest-free 10-year instalments for IHT payments on qualifying business and agricultural assets, maintaining consistency with existing rules. However, relief application will shift to a chronological system, impacting succession planning and lifetime gifting strategies.
Impact on Estate and Succession Planning
These potential changes could significantly affect estate and succession planning strategies, as extending the gifting exemption period and introducing a lifetime gifting limit could make it more difficult to pass wealth tax-free during a lifetime. It is crucial for individuals to understand where their estate stands in relation to the current IHT threshold, according to Stephen Lowe, group communications director at retirement specialist Just Group.
Inheritance Tax Receipts
Inheritance tax receipts for April to September 2024 totaled £4.3 billion, a 10% increase from the same period in the previous year. The ongoing trend of increasing IHT receipts is largely due to fiscal drag, as rising asset prices and frozen nil-rate bands drag more estates inside the IHT net.
With the baby boomer generation reaching average mortality, tax partner at wealth management firm Evelyn Partners, Laura Hayward, predicts that changes aimed at increasing IHT take beyond fiscal drag could reap outsize results over the coming years.
Giving Gifts Before the Budget
Given the potential changes in gifting rules, it may be strategic for individuals to give gifts before the Budget to avoid any increased tax liabilities. Rumours suggest that the government is planning to cut IHT exemptions in the upcoming Budget, which could potentially result in increased IHT revenue.
In summary, the main potential IHT exemption changes in the upcoming Budget centre on lengthening the gift exemption period to ten years, introducing a lifetime gifting limit, and adjusting relief application rules on business and agricultural assets. These changes could affect estate and succession planning strategies. It is essential for individuals to stay informed and seek professional advice to ensure their estates are managed effectively.
- To potentially mitigate any increased tax liabilities due to potential changes in gifting rules, it might be advisable for individuals to make lifetime gifts before the upcoming Budget.
- Given that the government is speculated to introduce a cap on the total amount that can be gifted tax-free over a lifetime, it is important for individuals to be aware of this change's possible implications on their personal finance and estate planning.
