Impact of Autumn Budget on Inheritance Tax: Potential Increase in Payments for Some Individuals
Headline: Autumn Budget 2023: Significant Changes Announced for Inheritance Tax Rules
The Autumn Budget 2023, presented by Chancellor Rachel Reeves and Prime Minister Keir Starmer, has proposed substantial changes to the inheritance tax (IHT) rules. These changes aim to tighten regulations on lifetime gifts and adjustments to how unused pension funds and death benefits are treated for IHT purposes.
Key Changes
- Crackdown on Lifetime Gifts: The government is considering introducing a cap on lifetime gifts to limit how much wealth can be given away free of IHT before death. The current "seven year rule," which reduces or eliminates IHT on gifts made more than seven years before death, may be revised to tighten this tapering effect.
- Unused Pension Funds Included in Estate: From 6 April 2027, most unused pension funds and death benefits will be brought within the value of a person’s estate for IHT calculations. This aims to prevent pension schemes being used primarily as tax planning vehicles to avoid IHT.
Impact of Changes
These measures reflect a broader effort by Chancellor Rachel Reeves to address a fiscal spending gap, aiming to increase IHT revenues while maintaining protections on working people's income taxes.
Current IHT Statistics
Despite these proposals, as of the 2022-2023 tax year, IHT remains payable on fewer than 1 in 20 estates. However, IHT liabilities are rising due to higher asset values and frozen thresholds. In the 2023/24 tax year, IHT receipts totalled £7.5bn, a record high.
Additional Changes
- The £325,000 nil-rate threshold for inheritance tax will remain unchanged until 2030.
- From April 2026, the relief for agricultural and business property will be restricted to the first £1 million. Above this amount, landowners will pay IHT at a reduced rate of 20%.
- From April 2026, restrictions on agricultural property relief from IHT will be introduced.
Conclusion
The Autumn Budget 2023 seeks to reduce the scope for avoiding inheritance tax through lifetime gifting and bring pension wealth more firmly into the IHT net, with changes expected to take effect over the next few years, notably from April 2027 for pension funds. The fiscal statement includes controversial reforms to wealth taxes such as inheritance tax, with the aim of ensuring a fairer distribution of the tax burden.
- The Autumn Budget 2023 proposals suggest implementing a cap on lifetime gifts to address inheritance tax (IHT) evasion, potentially affecting one's savings and wealth planning strategies.
- The changes to inheritance tax (IHT) rules in 2027 will include the addition of most unused pension funds and death benefits to the value of an estate, which could significantly impact retirement savings and subsequent property transactions, especially in the business and finance sectors.
- The general-news headline highlighting the Autumn Budget 2023 reveals a focus on political decisions, including controversial reforms to IHT, that could influence the broader finance and investment landscape, potentially leading to changes in pensions, property ownership, and business structures.
