Inheritance Tax Rise in the UK Budget 2024

Inheritance Tax Rise in the UK Budget 2024

As the Autumn Budget 2024 approaches, UK property investors and taxpayers are bracing for potential changes, particularly surrounding Inheritance Tax (IHT) and Capital Gains Tax (CGT). With the government under pressure to address public finance gaps, speculation is rife among tax experts about possible increases in these taxes.

What is the Current Rate of Inheritance Tax?

Inheritance Tax is a 40% levy applied to estates exceeding £325,000. The threshold includes the nil-rate band of £325,000 and an additional £175,000 for family homes passed to direct descendants (the residence nil-rate band). Here’s a simple breakdown of how IHT is currently calculated:

  • Property Value: £700,000
  • Less Residence Nil-Rate Band: £175,000
  • Less General Nil-Rate Band: £325,000
  • Taxable Property Value: £200,000
  • IHT at 40%: £80,000

Potential Changes in the 2024 Budget 

While no official announcements have been made, tax experts suggest several potential scenarios for the upcoming budget:

  1. IHT Rate Increase
    There are speculations that the current 40% IHT rate could rise to as high as 45% or even 50%. This increase could significantly impact the amount of wealth passed down to heirs and increase anxiety among taxpayers.
  2. Threshold Reduction
    Another possible change is a reduction in the £325,000 nil-rate band, meaning more estates would become subject to Inheritance Tax. Lowering this threshold is a common government strategy to raise revenue.
  3. Double Death Tax (CGT on Top of IHT)
    Currently, CGT does not apply to inherited assets. However, some speculate that the government may introduce CGT in addition to IHT, which could further diminish the wealth passed down to beneficiaries.

Preparing for Potential IHT Changes

For those concerned about possible changes, there are steps you can take now to mitigate future tax burdens:

  • Annual Gift Allowance: You can give away up to £3,000 per year without triggering IHT. This is a straightforward way to reduce the size of your estate.
  • Surplus Income Rule: You can also give away excess income, provided it doesn’t affect your standard of living. This income won’t be subject to IHT.
  • Junior ISA Contributions: Contributing up to £9,000 per year to a Junior ISA is another way to move assets outside of your estate.
  • AIM Investments: If you’ve invested in qualifying AIM companies to benefit from IHT relief, avoid selling in haste. Ensure that any financial decisions align with your long-term goals.

Speculation surrounding the Autumn Budget 2024 has many taxpayers worried about potential Inheritance Tax hikes. While nothing is certain until the official budget announcement, being proactive about tax planning can help you avoid unwanted surprises. Seek professional advice at UK Tax Wise before making any major financial decisions, and stay informed as we await the final verdict on October 30th.

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