News | January 11, 2024

Inheritance Tax: pre-Election Speculation

There was much speculation leading up to the Chancellor’s Autumn Statement on 22 November 2023 that the government would cut, or maybe even abolish, inheritance tax (“IHT”); but, in the end, Jeremy Hunt reportedly had a change of plan and the Autumn Statement included no mention of IHT. Instead, with the government boosted by the recent fall in the rate of inflation to 4.6% and with government borrowing lower than forecast, there was a U-turn on their position on tax cuts with reductions to the rates of national insurance contributions, as well as tax relief for businesses being announced.

The lack of any announcement on IHT this time suggests that this may be earmarked for the 2024 Spring Budget.

IHT has been under government scrutiny for some time; however, so far, no significant changes have been made. IHT is reportedly Britain’s “most
hated tax” so a reduction in rates (currently the main rate is 40%) has the potential to win Conservative votes at a key point in the Election timetable. Given that Labour are likely to take the opposite view and retain and/or increase IHT, a clear policy announcement in the Spring Budget on the tax could make it a key battleground in the General Election. As could the parties’ policies on the taxation of non-UK domiciled individuals as the Labour party is known to favour removing the beneficial tax treatment that can apply to such individuals.

The uncertainty around the future of IHT does not help private clients with their estate planning now. All we can advise at present is to bear in mind possible changes, but plan for the rest of this tax year to make use of the existing IHT allowances whilst they are available – the annual exemption and “gifts out of surplus income” exemptions in particular. If a Labour government comes into power at some point in the next tax year, these reliefs could be taken away or reduced. If major IHT announcements are included in the 2024 Spring Budget, private clients should also plan on reviewing their Wills and estate planning early in the next tax year as any IHT planning structures may need to be adjusted.