The new Government’s announcement that its first budget will be on 30 October 2024 has led to speculation about inheritance tax.
The only official statement in the Labour Party’s manifesto about inheritance tax was that it will “end the use of offshore trusts to avoid inheritance tax”.
On 29 July 2024, the new Government released a policy document confirming they will abolish the tax regime for non-UK domiciled individuals ("non-doms") and replace it with a new residence-based regime from 6 April 2025.
The proposed changes mostly reflect the announcement made in the (Conservative) spring budget earlier this year. Most importantly, it has been confirmed that the four year exemption for foreign income and gains for new arrivals will be retained. There will not be any transitional regime for new foreign income and gains arising but there are plans to retain the temporary repatriation facility with details to be announced later. The 10 year residence test is to be implemented but the Government has announced that it will “end the use of excluded property trusts to keep assets out of the scope of IHT”. The treatment of historic excluded property trusts is still uncertain.
Other measures concerning inheritance tax could include the following:
- A reform of Business Property Relief (“BPR”). Currently an interest in a trading business owned for two or more years qualifies for 100% relief from inheritance tax. It could be that this relief is capped at a certain amount per person or there could be a change to the requirement as to the level of trading activity that the business must undertake
- It could be that BPR is removed for certain “investments” like AIM listed stock. If the relief was initially introduced to encourage entrepreneurs to take risks to start up and grow a business, the Government may take the view that allowing the same relief to be claimed for a particular type of investment is not what was intended
- It is possible that the granting of a capital gains tax uplift on death as well as BPR on the same assets is seen as too generous. The view could be taken that an asset qualifying for 100% BPR from inheritance tax should not be revalued for capital gains tax as it otherwise provides a “double benefit” to beneficiaries of an estate
- Currently pension funds are exempt from inheritance tax but there are rumours indicating that the Government could seek to include pension funds in a person’s taxable estate on death or that there might be the introduction of a limit to the amount of pension that could be passed on tax-free to create a “pension” nil rate band similar to the residential nil rate band
- The regime for potentially exempt transfers could be overhauled. Currently, gifts made over seven years before a person’s death are exempt from inheritance tax. If the Government decides to draw from past reports when considering any inheritance tax changes, an All Party Parliamentary Group in 2020 proposed introducing a charge on lifetime gifts — at 10% over a £30,000 annual allowance
It is hoped that any significant change will be introduced only following consultation so as to permit time for taxpayers to plan for any new regime. Those with business interests though, who are heavily dependent on the availability of a current relief or those looking to pass on significant amounts of wealth to the next generation by lifetime gift. may want to start bringing forward their planning before any changes to the current regime are made in the autumn.
For advice on mitigating your inheritance tax exposure, contact out inheritance tax solicitors.
