It wasn’t that long ago when we were discussing whether Inheritance Tax (IHT) would be abolished, how fortunes have changed. A few months into the Labour government we saw the complete opposite. During the Autumn Budget last October and the first one for Labour in as many years, it was confirmed that IHT would stay! So, do you need to worry about Inheritance Tax?
The rules got tougher as Labour brought your pension investment into the realms of IHT and restricted Business Property relief (BPR) and Agriculture Property relief (APR). A whole raft of significant changes to IHT means that this wealth tax will affect many more people.
Whilst most of us were surprised by this move, it remains the fact that IHT is to generate around £8.3 billion in 2024/2025 (quoted by Office of Budget Responsibility) which is 0.7% of all tax receipts and 0.3% of the national income.
Ms. Reeves has plans to change the current situation regarding inheritance tax (IHT). She aims to increase the tax revenue generated from IHT. While it has historically impacted a small percentage of the population, she hopes to expand its reach to include more of the wealthy. This includes the value of your business at the time of sale and your pension pot, both of which contribute to your overall wealth.
What can you do in the face of IHT net widening?
Planning for IHT can be important for individuals affected by it, though the approach taken can vary significantly from person to person. This variation is often influenced by individual attitudes and perspectives. Through our discussions with clients, we have identified two distinct viewpoints regarding IHT planning that are commonly expressed.
- You either believe that once you pass away, your beneficiaries will inherit significant wealth and can handle the tax burden.
- Whether you view your wealth as the result of hard work or as inherited wealth, it is important to protect as much of it as possible for future generations.
The main question isn’t just about how much Inheritance Tax (IHT) the next generation will pay, although that’s certainly important. What’s crucial is understanding how your beneficiaries will pay that tax. There are strategies you can employ to minimise the amount they owe, but it’s essential to consider the payment process as well.
Talking about wealth is an emotional issue
For numerous clients, addressing the subjects of personal wealth, family dynamics, and the reality of mortality can be daunting. Yet, engaging in these conversations is essential for fostering understanding and planning for the future.
This is where we come in as trusted advisors. As accountants we are serious about your and your ambitions and want to help you achieve your goals. If your goal is to review the IHT position, understand the numbers and plan for how the next generation will pay this tax, you need to start thinking about it now.
So, do you need to worry about Inheritance Tax? The short answer is no. Worry won’t help you progress, but discussing it with someone you trust who understands the rules and laws will be of help.
When we openly talk about your IHT position and where you want to be, we can discuss topics like:
- Do you give some of your wealth away now?
- How much can you gift without affecting your IHT position
- Have you got a Will which is recent and reflects your current position
- Will the changes announced as part of the last Budget impact on any tax planning done so far
- How will your beneficiaries pay the tax?
We understand that everyone’s situation is unique, and there isn’t a universal solution that works for everyone. It’s completely natural to feel somewhat concerned about the changes to IHT.
It’s important you don’t ignore these changes and at least bring yourself up to date with what IHT looks like from next April and April 2027 when your retirement savings will be impacted. Seeking support and considering different perspectives can truly make a difference.
To help our clients we are holding two seminars with Elite Law Solicitors as the first piece of our education programme.
The session on April 1st is already fully booked; however, we still have a few spots available for the session on April 23rd. If you haven’t booked yet, please follow this link.
You’ll gain a basic understanding during the session, and afterwards, we can discuss your situation and make tailored recommendations.
Finally, if you are interested, you can look at the latest available government statistics on IHT here