Autumn Budget: Growing speculation as to the changes we may see

As Chancellor Rachel Reeves prepares to deliver her Autumn Budget on the 26 November, speculation continues to grow regarding the changes that may be implemented. A huge talking point is the anticipation that new rules may be brought in regarding Inheritance Tax (IHT). With IHT already one of the most politically charged taxes, any reforms could significantly affect estate planning for families and business owners alike.

With IHT thresholds currently frozen until 2030, pensions to be included in estates for IHT purposes from April 2027, and the 2024 Budget announcement regarding agricultural and business property relief, speculation now turns to restrictions being put into place regarding measures that individuals can take during their lifetime to reduce their IHT liability. 

At present, individuals can gift an unlimited amount of wealth, tax-free, provided they survive seven years after making the gift. These gifts are referred to as ‘potentially exempt transfers (PETs)’. A PET will only become taxable in the event that the donor passes away within the seven years following the gift. However, recent reports suggest that this may be an area in which Reeves wishes to implement a lifetime cap, creating a very different situation for those wishing to make lifetime gifts. By putting a cap in place, any gifts that are made over an individual’s lifetime allowance could potentially attract inheritance tax at 40%. 

Other reports have noted speculation that the seven-year rule could be extended or scrapped altogether. If the rule is extended, individuals will have to survive for a longer period after making the gift to ensure that it does not attract tax. If the rule is scrapped altogether, all gifts made during an individual’s lifetime could be taken into account on death, again increasing the potential tax liability. 

Both of these rumoured changes would see a radical change in the treatment of gifts and their impact on IHT. 

What can you do now?

To prepare yourself ahead of the budget, we advise that you consider the following points:

• Review Larger Gifts – if you are planning on making significant lifetime gifts, you may wish to do this before any potential changes are made in the Budget.
• Review your Wills and Trusts – speak to a member of our team to ensure that your Wills and Trusts are up to date and structured in a way that accounts for flexibility.
• Keep Clear Records – take note of any gifts you have made, including their dates, to aid your Executors after you have passed away.
• Use your Annual Allowances Early – these allowances include the £250 small gift exemption, regular gifts out of income and your £3,000 annual gifting allowance. 

It is important to note that these proposals remain speculative, and no changes will take effect until they are formally announced. However, given the potential impact of such proposals, you may wish to review your estate plans in preparation. It is important that you do not rush into   any decisions without taking the appropriate advice, as gifting can often trigger other taxes, such as Capital Gains Tax. 

If you are concerned about how potential IHT changes in the upcoming Budget may affect you, please contact the office to speak to a member of the Private Client team on 033 03001103 or request a call back.