This document has been prepared based on rumours and speculation around the new Labour Government’s budget which is taking place on 30th October 2024.
This document is based on opinion and speculation and should not be used in place of seeking professional tax advice. This document does not purport to address all possible worldwide tax consequences that may be relevant.
We accept no liability (including for negligence) to anyone else or for any other purpose in connection with this document and recommend that professional tax advice is taken.
Budget Rumours
The Labour government has pledged not to increase certain taxes, such as Income Tax, National Insurance, and Corporation Tax. However, they have not made any promises regarding other taxes in several areas.
The Labour government’s budget is set to be announced on October 30th, 2024. In this article, we’ll examine the key rumours surrounding the budget and explore strategies that can be implemented ahead of time to help minimize the potential impact on your clients.
Rumour 2 – Raising Inheritance Tax (IHT)
The Rumour
Similarly to rumour 1, we believe that Inheritance Tax will almost certainly increase in Labour’s October budget.
Currently, individuals can transfer up to £325,000 of their estate tax-free, with an additional residence nil rate band of £175,000 available when passing on the family home to direct descendants. Any unused allowances can be transferred to a surviving spouse, allowing up to £1 million to be passed on free of tax when the second spouse dies. Transfers exceeding these thresholds are subject to a 40% IHT rate, with the residence nil rate band tapering off for estates worth over £2 million.
Labour is likely to increase IHT in some form during their budget announcement. Potential changes could include raising the tax rate, reducing allowances, or altering thresholds for tapering. Additionally, amendments to key reliefs, such as Business Property Relief (BPR), may be introduced. Currently, BPR exempts up to 100% of the value of shares in unlisted trading companies from IHT, but we could see either a restriction on the amount of BPR or stricter criteria for qualification. There are also suggestions that the “7-year rule” for Potentially Exempt Transfers could be extended to 10 years.
How to Mitigate This
Prior to the budget we would recommend accelerating any proposed transfers of value in order the ensure that these take place under the current Inheritance Tax regime. Since changes to IHT could be implemented immediately following the budget, it’s important to act quickly.
As Inheritance Tax allowances are assessed at the date of death, it is more difficult to plan for these however, Potentially Exempt Transfers are likely to fall within the current regime should they be made prior to Labours budget.
Similarly to Capital Gains Tax, clients may wish to start transferring part of their holding in the family business prior to the budget in order to increase the likelihood that these transfers will continue to qualify for Business Property Relief or be under the current seven year rule for Potentially Exempt Transfers.
(E) enquiries@advaloremgroup.uk (T) 01908 219100 (W) advaloremgroup.uk
