The Treasury is once again reported to be exploring changes to Inheritance Tax (IHT) as ministers look for options to fill the economic black hole.
While the Chancellor is still weighing up her options about how to raise extra money, it seems like she might not be finished with IHT reforms.
If you are worried about how the IHT changes could impact you, we can help you to manage your estate to mitigate the impact of any potential tax raids.
What is changing with Inheritance Tax?
Nothing is set in stone at the moment, but there are plenty of proposals on the table, and all of them should be taken seriously.
The most concrete reform already in motion is the widening of the IHT net to include unused pension pots from April 2027.
That change alone will bring many more estates into scope and has reshaped how people and advisers think about sheltering wealth.
Our go-to advice has been to make the most of gifting as a way to circumvent IHT bills, but this avenue is under attack.
A fresh proposal to reduce or remove the scope for gifting is currently being discussed alongside a consideration of adjusting how the tapering of tax is handled.
Currently, only gifts given in the seven years before your death are considered for IHT.
Any gifts that fall outside of the seven-year period are not under consideration for IHT at all.
Gifts are taxed on the recipients, and this means the individual’s nil rate band of £325,000 is set against the gift to ensure tax is paid on gifts above this sum.
The taxable amount payable by the recipient within the seven years of the date of the gift is determined by a staggered rate of tax application.
The tax rate is:
All of this could change with the Autumn Budget, so we will be sure to keep you updated as soon as we know more.
What can I do to lower my Inheritance Tax?
First, don’t panic!
It can feel quite daunting with such a vague idea of what lies in store to know how to proceed, but we will help you figure it out.
The best thing you can do for now is calculate what your estate looks like so you know how much could be impacted by IHT.
Where pensions are concerned, consider how the 2027 change affects who will bear the tax burden, and whether drawing income or structuring death benefits differently makes sense in light of your broader plan.
It also looks like the time has come to reassess any gifting strategy.
Lifetime gifts still have a role, but their effectiveness depends on the precise shape of any future rules, and this is something we cannot yet say for certain.
Whatever the reforms look like, it’s unlikely that gifting will lose all of its benefits, so still consider how best to gift assets where possible.
Experts are sceptical about the effectiveness of an IHT hike, but that may not deter the Government from utilising it as an option to raise funds while keeping their electoral pledges.
Whatever the future of IHT looks like, we are here to help you structure your assets in the most tax-efficient way possible.
Prepare for the future of Inheritance Tax by speaking to our team today!
