Inheritance Tax – “Britain’s most hated tax” – is it on the way out?
Despite only a small number of estates in the UK having to pay inheritance tax (“IHT”), (less than 4% of estates in 2020/2021 paid IHT according to the most recent HMRC’s National Statistics), the British public still struggles with the idea that we are forced to pay tax after we have died, when we have often paid tax throughout our lifetimes. There is a rapid growth of wealth amongst young people in Britain, meaning that the number of estates that will be hit with an IHT bill is set to rise. This is if the current government doesn’t decide to scrap the scheme altogether.
Rishi Sunak has hinted that the current rules surrounding IHT may be cut or even abolished altogether and the Spring budget, due to be released on 6 March, is eagerly awaited. However, not everyone is as optimistic that there will be IHT cuts made since the number of estates affected is so low and yet it still produces over £5billion of revenue each year, and that figure is set to rise. Abolition may then only seem attractive to wealthier voters, especially those in London and the South-East where the IHT net catches the most estates, but whether the government are willing to lose the amount gained by the tax is debateable. Any reduction would arguably need to be replaced by an alternative method, that may prove even more unpopular.
How the IHT rules would be reduced is speculative. The current rate of 40% could be lowered. Or the nil rate band (the amount up to which an estate has no IHT to pay) that currently stands at £325,000 could be increased (the allowance was frozen in 2009 and has remained ever since. If that had risen in accordance with inflation, it would now stand at almost £500,000. In the Autumn Statement in 2022, the Chancellor of the Exchequer, Jeremy Hunt, confirmed this amount would remain frozen at its current rate until 2028).
Giles Wilson are able to advise individuals regarding potential inheritance tax due on estates and can suggest ways to reduce or remove the liability by estate planning made during one’s lifetime. If the government does reduce or abolish IHT, there is no doubt that many individuals would need to revisit their current standing Wills to ensure that it is written in the most tax efficient way possible. Even without a change in the IHT rules however, we suggest that everyone should revisit their Wills every 5 years or each time a significant event happens in one’s life, such as getting married, having children, inheriting money or acquiring large assets such as house. Creating a new Will or updating a current one with Giles Wilson is a straight-forward process and an initial meeting with one of our solicitors will clearly explain the process.