Despite it only affecting around 4% of deaths in the UK, inheritance tax is arguably the most disliked tax of them all. This is partly because many regard inheritance tax as technically a double tax because it applies to a person’s wealth even though they have already paid tax on their earnings and capital gains during their lifetime. It is also partly because some of those impacted by it will receive hefty bills that they struggle to pay out of liquid assets. This means they must make difficult decisions as to how to pay. This could mean selling property and other illiquid assets … or taking out loans where that is undesirable or impractical.
What could change?
The Office for Budget Responsibility predicted that the Covid-19 pandemic could lead to a 20% increase in the number of families facing inheritance tax bills because many deaths were sudden and unexpected, leaving little to no time for people to organise their estates. That though is the price of failing to plan or failing to take this tax seriously. Rising property prices are another factor affecting inheritance tax because as the value of a property increases, the more likely it is to exceed the nil rate band.
The Spring Budget 2021 already brought subtle changes to inheritance tax. The chancellor, Rishi Sunak, announced that the current thresholds would be frozen until at least 2025/2026, which will only increase the number liable for inheritance tax as assets grow in value. Figures from the Treasury back this up too and it’s expected that an extra £1bn will be raised through raised.
The Organisation for Economic Co-Operation and Development (OECD) recommended that its 37 member states increase inheritance tax and related taxes to help economies recover from the high level of state spending seen during the pandemic. So, as the Autumn 2021 Budget approaches, it is predicted that the chancellor will target the number of inheritance tax exemptions available to help raise additional revenue for the economy.
Any changes are unlikely to be confined to the forthcoming budget, however. The chancellors comments on the nil rate band suggest a longer game. There is much to think through and shockers may range from the abolition of the capital gains tax uplift on death as well as inheritance tax business and agricultural property relief right through to the wholesale replacement of the current tax by a completely new regime with a much wider tax base and an enhanced capacity to generate revenue. Indeed, the changes may span the next decade.
Within the next few months, I intend publishing a new book, Strategic Inheritance Tax Planning, which will identify the anticipated changes and explore how these can be prepared and planned for by anyone exposed to this tax. It will be a thought provoking read which will dovetail with some of my other books, especially those which focus on inheritance tax.
The Autumn Budget 27 October 2021: Capital Taxes
Many commentators are predicting changes to inheritance tax and capital gains tax following recent ‘simplification’ reviews by the Office of Tax Simplification. Inheritance tax is increasingly bringing in more tax for the Treasury (a record £571m in July 2021 alone) and the Chancellor could decide to rationalise and simplify certain reliefs such as business property relief to increase future revenues without directly changing headline tax rates.
Better still, the vast majority of taxpayers, for which read voters, would not be affected in the short term.
Nevertheless, the bigger changes may occur later in the decade.
Increasing capital gains tax, possibly by aligning with income tax rates, would be a more visible tax rise but may not collect a great deal relative to the total tax take. Of course, announcing a tax rise for say April 2023, could incentivise asset owners to sell up in 2022/23 and bring a nice cash boost for the Treasury in the short term. However, in the light of the NIC increase, perhaps making technical changes that cut back capital gains tax reliefs, such as the uplift on death, is a more likely option.
Definitely a case of watch this space.