The Autumn Budget and Inheritance Tax
In a grand conclusion to the Chancellor's autumn statement, Jeremy Hunt captivated the audience by conjuring a two per cent reduction in the national insurance rate for employees from his exchequer hat. This translates to a decrease in the employee rate from 12% to 10%, accompanied by parallel cuts for the self-employed. Class 2 contributions will be abolished, and class 4 contributions will experience a one per cent reduction, coming down from 9% to 8%.
Jeremy Hunt also confirmed the permanent implementation of "full expensing" for businesses, allowing a 100% first-year allowance for qualifying plant and machinery assets to be deducted from taxable profits.
Additionally, £500 million will be allocated to establish the UK as an AI powerhouse, building on the recent international summit hosted by PM Rishi Sunak. The funds aim to facilitate the development of innovation centers, akin to those already established in Edinburgh and Bristol.
Despite being framed as an "autumn statement for growth," the Chancellor's delivery began with forecasts from the Office for Budget Responsibility (OBR) predicting a decrease in headline inflation from 4.6% to 2.8% by the end of 2024 and reaching the government's 2% target in 2025. However, the OBR revised its economic growth predictions, expecting a 0.7% growth next year and 1.4% in 2025, marking a significant reduction from previous forecasts.
Surprisingly absent from the statement was any mention of inheritance tax (IHT), a topic often speculated upon before budget announcements. Described as the "elephant in the room" , IHT remains a frozen concern, comparable to a polar bear forming its own glacier due to the prolonged freeze of the nil rate band.
While many fear leaving substantial bills for their families, the reality is that a considerable number fall below the IHT threshold. Nonetheless, with a 40% charge, regular checks and planning can minimize liability for those at risk.
The Chancellor continued the IHT nil rate band freeze at £325,000 until April 2028, along with the residence nil-rate band at £175,000 and the residence nil-rate band taper starting at £2 million. Each person can pass on a maximum of £325,000 in assets tax free when they die, including shares and property. There is an extra £175,000 allowance when the main home passes to a direct descendant. If someone is in a marriage or civil partnership, they can leave everything free of IHT to their partner, and when the second partner dies, two allowances are added together when calculating whether tax is due on the combined value of the estate.
Ways to reduce the size of an estate for inheritance tax purposes while someone is alive include making gifts, either into a trust or to individuals. A gift to an individual paid out of capital is not taxed at the time of the gift and will become wholly exempt if you live for seven years after the date of the gift. A gift into a trust is taxable at the time of the gift if its value is over the nil rate band - though the life-time rate, at 20%, is much lower - and again the value of the gift will drop out of account after seven years. Gifts can also be paid out of surplus income, where someone is able to maintain their normal lifestyle without the cash, or by making use of the automatic allowances, which include an annual exemption to allow gifting of up to £3000, together with a separate small gifts allowance of up to £250 per person.
In conclusion, dealing with inheritance tax liabilities, much like the Chancellor, is a task often deferred by many, highlighting the need for specialist advice and careful consideration of available options.
For more information on our inheritance tax services see Inheritance Tax Planning Solicitors in Eastbourne & Hastings - Stephen Rimmer LLP.
Don't forget that we offer a free 30 minute consultation for all new clients.