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Did you know that after World War II, the UK government raised inheritance tax (IHT) by 80% and then went as high as 85% in 1969? These figures are much higher than the 40% levied in 2020 on the value of an estate exceeding £325,000. Yet questions have been raised in the press about whether IHT may be in the Chancellor’s sights as we approach the autumn budget.
IHT receipts are down on the previous financial year – £2.2bn less compared to 2019-20. This would be cause for Treasury concern in the best of times. Yet in the wake of spiralling public debt caused by the pandemic, lockdown and budget handouts in March 2020 (e.g. the Job Retention Scheme), the UK government will be facing greater pressure to maximise existing tax revenues and, possibly, to reform some existing tax rules to try and balance the books.
What’s happening with IHT?
Just before COVID-19 started to seriously hit Europe in early 2020, UK politicians were already looking at IHT as a potential area to simply taxation and make it more efficient. In January, a group of MPs (All Party Parliamentary Group on Inheritance Tax and Intergenerational Fairness) put forward a proposal to reduce IHT to 10% – rising only to 20% for estates worth over £2m. In return, many of the current “IHT loopholes” would be closed such as the 7-year rule, which exempts a gift from IHT if it was made at least 7 years prior to the owner’s death.
This proposal was not adopted. At the time of writing, there isn’t any hint that the government might take it up. Yet there is little doubt that the government’s large Conservative majority in the House of Commons, plus urgent strain on the public finances, presents a unique chance for the Prime Minister and Chancellor to bring significant changes to the IHT system.
What reforms might arrive?
Of course, it is possible that the government might not radically change IHT at all. Certainly, it seems very unlikely that IHT will return to the kinds of levels seen after WWII. Yet particular exemptions might fall into the firing line to try and pay off the £1tn in debt which the state is expected to accumulate this year. Here are some possibilities later in 2020:
- Unused pension assets can be passed down to beneficiaries free of IHT in 2020. This may be scrapped.
- The above-mentioned 7-year rule may be axed.
- Reliefs for farmers and family business owners may also be eradicated.
- The additional nil rate band (available since the 8th of July 2015) may be removed. This currently allows a married couple to each pass on an extra £175,000 to their direct descendants, in the form of their family home.
It’s important to state that these possibilities are purely speculation at this point, and the reality could transpire much differently in 2020. However, our financial planning team at WMM believes that it is important for people in Oxford to be prepared regarding the potential outcomes. If you are concerned about how possible changes to the IHT system in the UK may affect your estate plan, then we recommend consulting an independent financial planner to ensure that you are in the best position to manoeuvre your plan in light of possible new laws and government policy.
If you are interested in starting a conversation about this aspect of your financial plan, then we’d love to hear from you. Get in touch today to arrange a free, no-commitment consultation with a member of our friendly team here at WMM.
Call us on 01869 331469