What if the government doesn't scrap inheritance tax?

We have all heard that the government is considering scrapping inheritance tax in their spring budget of 2024 with some suggesting this is a move to win over voters ahead of the next election. But don’t get our hopes up just yet, this isn’t the first time scrapping of inheritance tax has been rumoured. 

There has been no formal confirmation or denial from the government regarding this proposal. Furthermore there has been no indication as to how the resulting loss of revenue would be offset. 

In the tax year 2022/23, inheritance tax generated the government  approximately £7.09 Billion representing almost 1% of all tax receipts for the financial year. Is the government prepared to scrap inheritance tax and accept a £7.09 billion black hole? We don’t know. But what we do know is there are steps you can currently take to mitigate, reduce or even eliminate your inheritance tax liability. 

Currently, inheritance tax is charged at the rate of 40% above your tax free allowances; for 2023/24 the allowance equates to £325,000 and is known as the Nil Rate Band. The calculation of inheritance tax derives from compiling the value of your assets including, but not limited to, your property, cash, investments and belongings. Whatever you own that has a value, HMRC want to know about it. This is then off set against your liabilities such as mortgages, loans and credit cards to derive at your taxable estate; but they have to be real debts. 

It is also noteworthy that inheritance tax is not limited to what your estate is comprised of on your death, it can be a lifetime tax as well if you make certain types of gifts. When assessing your inheritance tax liability we have to look back at what you did with your assets, or what losses you generated by giving your assets way, in the last 7 and sometimes 14 years.

There are various reliefs and exemptions that impact your liability and in some circumstances completely eliminate any tax liability; these include transfers to spouses or civil partners, or charities or to you children and grandchildren to make use of your Residence Nil Rate Band. With an appropriately drafted Will a married couple or civil partners can leave their children up to £1,000,000 tax free. 

If you do not want to bet on inheritance tax being scrapped there are a variety of legal steps you can take to mitigate your inheritance tax liability. However, this relies on you taking action now, the more you delay the more you will pay.

We can advise you on your inheritance tax allowances, lifetime gifting exemptions, how to reduce the inheritance tax rate from 40% to 36%, the benefits of Trusts as well as investments that qualify for business property and agricultural relief which have the potential of being 100% exempt from inheritance tax. 

For more information and advice, get in touch with one of our specialist team.