The Spring Budget & Inheritance Tax
Here are the distilled essential insights you should know from the 2024 Spring Budget. Additionally, we've collaborated with Boring Money to provide a perspective on Inheritance Tax.
-
In the 2024 Spring Budget, there have been no adjustments to the Inheritance Tax (IHT) threshold or tax rate of 40%. This status quo has remained unchanged for over 14 years, with the threshold steady at £325,000 per individual. Furthermore, the Residence Nil Rate Band (RNRB), an additional allowance of £175,000 for estates passing on a primary residence to direct descendants, has also remained stagnant.
The continuous rise in wealth, particularly in property values, over recent decades has contributed to overall increases in estate values. Consequently, many estates remain susceptible to significant IHT liabilities. However, proactive planning enables individuals to mitigate their estate's potential tax burden. This highlights the importance of initiating such measures sooner rather than later.
-
Gifting. The simplest solution is often gifting. For IHT purposes gifts effectively fall into two categories: those that are tax-free straight away, and those that only officially drop out of your estate after a period of time, typically seven years. One popular IHT planning strategy is to gift your assets into a trust, but always take legal advice on trust structures.
Insurance. It is possible to insure against a potential future IHT bill with a life insurance policy that pays out to the value of the expected bill for your heirs. Providing the policy is written into trust there will be no IHT to pay on this money.
Investing in Shares. Certain companies listed on the Alternative Investment Market (AIM), the junior market of the London Stock Exchange, and private companies (non-AIM) can qualify for Business Relief (BR). As a result, in the right circumstances, shares that qualify for BR will not count as part of your estate for IHT purposes. You must have held BR assets for at least two years prior to your death for the assets to fall out of your estate for IHT purposes. Always seek professional advice as this area is complex with the potential for rules to change.
Pensions. Most people are aware that private pensions are highly tax-efficient, but their IHT advantages are less widely recognised. Typically, pension savings fall outside your estate for IHT purposes meaning it can be a great way to pass money to heirs. With this in mind, strategies can be applied to reduce the size of your estate for IHT purposes. For the majority if people, it makes sense to take professional advice on how to plan your retirement savings and this includes potential IHT liabilities.
It is important to be aware of the following risks: The Financial Conduct Authority (FCA) does not regulate some aspects of Trust, Tax and Estate Planning.
