In the upcoming Budget for 2024, there are expected changes to inheritance tax that could impact families across the UK. Chancellor Rachel Reeves is aiming to raise up to £40 billion through tax increases and spending cuts, with inheritance tax being one of the areas likely to see adjustments.
Inheritance tax is a levy imposed on the estate of a deceased individual, but currently, only around four per cent of families end up paying this tax, as most estates fall below the tax threshold. Assets left to a spouse or civil partner are exempt from inheritance tax, regardless of the estate’s value. However, partners who cohabit but are not married or in a civil partnership do not benefit from this exemption. Each person has a £325,000 inheritance tax-free allowance, with estates valued beyond this threshold taxed at a rate of 40 per cent on the excess.
The potential changes to inheritance tax in the upcoming Budget have not been fully disclosed yet. There are discussions about revisiting rules around gifts given during a person’s lifetime, potentially addressing exemptions for businesses and agricultural land which currently have tax privileges. The exact extent of these changes remains uncertain, but the government is looking at various avenues to increase revenue amidst a reported budget shortfall.
Government officials have stated that taxes will not rise for “working people,” indicating that the wealthiest individuals are likely to bear the brunt of any new tax measures. Chancellor Rachel Reeves mentioned the possibility of increasing capital gains and inheritance tax in the Budget, emphasising the need to balance day-to-day spending through tax revenue and manage public finances efficiently.
For families planning their estates, these potential changes to inheritance tax mean individuals may need to review their financial plans to minimise tax liabilities. Should inheritance tax rates increase or exemptions be modified, those intending to pass on an inheritance may have to reconsider their strategies to navigate the evolving tax landscape.