🌹 Labour’s Budget Plans – Rumours – DAY 3 🌹

Continuing our daily discussion of the potential changes introduced by the Labour Budget, today we’re looking at Inheritance Tax (IHT).

• Cut the Nil Rate Band (NRB) from current £325,000 (which has been the level since 2009) to a lower amount.
  • Remove the Residential Nil Rate Band (RNRB), which is currently worth £175,000 per individual who leaves a share of the main home to a lineal descendant (child, grandchild, etc).
  • Increase the % rate of IHT from the current level of 40%.
  • Scrap or change gifting allowances.
  • Tightening Business Relief (BR) or Agricultural Relief (AR) criteria – this is a relief that means any assets that qualify do not incur IHT.
  • Apply CGT on death – a “double death tax” – on top of IHT.
  • Pensions into Estates upon death – (see the pensions section).

Our Comment:

• Cut the NRB – this has remained frozen already since 2009 and if it had kept track with inflation, it would would now be in the £400,000’s. My view – unlikely.
• Remove the RNRB – would be an easy one to remove, is already challenging to understand/administer properly. They could look to simplify and raise the NRB to £425k and remove the RNRB altogether – this could save some cash and simplify the probate process. Or just take it away altogether. My view – very possible.
• Increase the IHT rate, or maybe a higher rate for larger estates – say 50% for estates over £10m, or some form of sliding or increasing scale – very possible, an overhaul of lifetime gifting is probably overdue.
• Scrap or change gifting allowances, increasing of the 7-year clock for gifts, etc. – possible.
• BR is generally a good idea for family businesses and succession. Why cripple a business because of death of a major shareholder/owner? However, a whole industry has sprung up in financial services to try and make use of this relief, and often very tenuously (AIM share portfolios and the like) – possible, and maybe some change likely, but could be some unintended consequences.
• Currently, assets are uplifted to today’s value upon death and passed on to the beneficiary at that value, so the capital gain “died” with the deceased. Could they remove this benefit? Possible, but let’s hope not, as this would be double dipping and make the marginal rate very high.
• Pensions into the Estate – see above – possible but hopefully unlikely.

This post represents just one part of the potential changes the Labour Budget may introduce and our opinions. To download a PDF containing our full thoughts, please follow the below link.