What if Inheritance Tax is affected by the 2024 Autumn Budget?

In our latest blog, we continue our look ahead to the 2024 Autumn Budget and how it could affect taxpayers.  

Today, we turn our attention to Inheritance Tax (IHT) and explore the potential changes that might arise from the Chancellor’s announcements. 

IHT receipts in the UK are on track for another record-breaking year, fuelling speculation about potential reforms to the controversial levy.  

New figures from HM Revenue and Customs (HMRC) show that £3.5 billion was collected between April and August 2024, a £300 million increase from the same period last year. 

The surge in receipts is largely attributed to frozen tax thresholds, which have pulled more estates into the tax net as asset prices have risen.  

This trend follows a record-breaking 2024 financial year, where £7.5 billion was raised through Inheritance Tax.  

With these rising figures, it seems increasingly likely that IHT could be a focal point for the Chancellor as part of Labour’s plan to address the Treasury’s financial challenges. 

The current state of IHT 

IHT is currently charged at 40 per cent on the value of an estate above £325,000 when someone dies.  

But what if the Chancellor decides to increase this rate or lower the threshold at which IHT becomes payable?  

Such a move could result in a larger portion of estates being subject to IHT, increasing the tax burden on beneficiaries and reducing the financial security they might have expected. 

What if exemptions are reduced? 

At present, several exemptions reduce the impact of IHT, including those on agricultural land and family businesses.  

But what if these exemptions are reduced or removed?  

Without these exemptions, assets previously protected from IHT could now be taxed, leading to a rise in tax owed by estates.  

This could particularly affect families with long-standing ties to agricultural land or small businesses, potentially forcing them to sell assets to meet the tax liabilities. 

The seven-year gift rule – What if it changes? 

Another consideration is the possibility that the Government could shorten the period during which gifts are subject to Inheritance Tax.  

Currently, gifts made less than seven years before death are subject to IHT. What if this period is shortened?  

A reduced gift period could capture more gifts within the IHT net, increasing the tax liabilities for those who have given gifts to family members in the years before their passing. 

Changes to spousal exemptions – Are they on the horizon? 

Assets passed between spouses or civil partners are currently exempt from IHT, offering relief to many families.  

But what if this exemption is lowered or even removed?  

Such a move could make transfers between spouses subject to IHT, increasing the tax burden for surviving spouses and their families. 

Freezing or reducing the nil-rate band 

The nil-rate band, currently set at £325,000, has not changed in several years.  

With rising asset values and frozen thresholds, many more estates have been pulled into the IHT net.  

There is speculation that the Chancellor may choose to freeze or reduce this threshold further.  

A freeze would erode its value over time due to inflation, capturing more estates within the IHT net.  

A reduction would have a more immediate effect, pushing many estates above the threshold and increasing tax liabilities. 

Although these are just ‘what ifs’, they highlight the kind of changes to Inheritance Tax that could emerge from the upcoming Autumn Budget.  

With IHT receipts continuing to break records, the likelihood of reforms seems increasingly high.  

As Budget Day approaches, we’ll continue to keep you updated on any developments. In the meantime, please contact us for advice relating to IHT.