Inheritance Tax Receipts Hit Record High: What to Expect from the Chancellor’s Budget

Inheritance tax (IHT) receipts have surged to a new record of £4.3bn in the six months to September 2024, data from HMRC shows, marking a £400m increase compared to the same period last year. As the Exchequer continues to benefit from frozen tax thresholds and rising asset values, IHT remains a growing concern for many families. With the Chancellor’s Budget due next week, speculation is mounting over potential changes to the IHT regime that could significantly impact estate planning strategies.

Why Are IHT Receipts Rising?

Several factors have contributed to this sharp rise in inheritance tax:

  1. Frozen IHT thresholds: The nil-rate band (NRB) for IHT has been fixed at £325,000 since 2009. With property prices and other asset values increasing, more estates are now exceeding this threshold and becoming liable for IHT at 40%.
  2. Rising property values: The continued increase in UK house prices has pushed more families with relatively modest estates into the IHT net.
  3. Fiscal drag: While asset values increase, the frozen thresholds are not adjusted for inflation, causing more estates to fall into the taxable bracket.

Neal Groves, Personal Tax Partner at Beavis Morgan, comments: Inheritance tax has evolved into a significant concern for families that would never have anticipated it. As the Chancellor prepares for next week’s Budget, there’s intense speculation about potential reforms. However, without adjustments to the thresholds, many families will continue to see their estates liable for significant tax charges.

What Could Change in the Upcoming Budget?

The upcoming Chancellor’s Budget has sparked widespread speculation regarding IHT reform. Many expect the Chancellor to announce changes aimed at modernising the system. Key areas of potential reform include:

  1. Business and Agricultural Relief: Some reports suggest that reliefs for business and agricultural property could be reduced or tightened. These reliefs allow up to 100% exemption from IHT in specific cases, but changes may target wealthier estates benefiting from these provisions.
  2. Pensions: There is growing speculation that pensions could be brought into the IHT net, although it’s unlikely this would involve the full 40% charge. A gradual reform may see certain pension benefits subjected to inheritance tax, especially if the government looks to close budgetary gaps.
  3. Gifting Rules: Another area under discussion is the reform of gifting rules. Current rules allow individuals to gift assets and potentially reduce IHT liability if they live for seven years after the gift. The Chancellor may look to simplify these rules or introduce more aggressive limits to increase short-term tax revenues.

Neal adds: With IHT receipts already at record levels, any changes in the Budget are likely to intensify the need for estate planning. Families need to prepare for potential reforms, particularly around business reliefs and gifting, which may become more restrictive.

How Beavis Morgan Can Help You Plan

As IHT continues to hit more estates, Beavis Morgan is here to help you navigate this complex area. Whether you’re concerned about upcoming changes in the Budget or need to review your estate planning strategy, our experts can assist with tailored advice including, for example:

  1. Strategic Estate Planning: We work with you to structure your estate to maximise tax reliefs, minimise your IHT exposure, and protect your family’s inheritance.
  2. Maximising Gifting Allowances: Take advantage of annual gift allowances and exemptions to reduce your estate’s size and IHT liability.
  3. Business and Agricultural Reliefs: We help business owners and farmers understand and utilise available reliefs effectively. If changes to these reliefs are introduced in the Budget, we’ll guide you through adapting your strategy to minimise the impact.
  4. Trusts and Pension Planning: Trusts remain a powerful tool to protect assets, while pensions are typically exempt from IHT. Together with our partner business, Integrity365, we can help you optimise your pension arrangements and explore trust options that work best for your estate.

Act Now Ahead of the Budget

With the Budget just around the corner, now is the time to review your estate planning and ensure you’re prepared for any changes. Neal Groves advises: Even if no immediate changes are made, the long-term trend of rising IHT receipts highlights the importance of proactive planning. By acting now, you can safeguard your estate against potential tax increases and ensure your wealth is passed on efficiently.

Conclusion

Inheritance tax is no longer a concern limited to the wealthy. With receipts hitting record highs and reforms potentially on the way, it’s crucial to seek professional advice. At Beavis Morgan, we offer expert guidance to help you navigate IHT and develop a tax-efficient strategy that protects your estate.

Contact your usual Beavis Morgan partner or Neal Groves to discuss how we can help you prepare for the future and reduce your inheritance tax liability.