4 minute read
Inheritance Tax and the Budget – Are you affected?
Inheritance Tax and the Budget –
Are you affected?
This was a revenue-raising Budget on wealth transfer, particularly in the context of the South East. Now is the time to take advice, and we can help you in particular if you:
• Are a homeowner
• Have pension funds or other investment assets
• Own or part own a family business or own agricultural land
The Budget has extended the scope of Inheritance tax (IHT) significantly. You may have heard the rhetoric that IHT is only paid by 6% of estates, but of course that is a national number. The picture is very different in certain localities not least Surrey and surrounding counties. The South East already pays the most IHT of any English region at 28% of all IHT paid (2021/2022 latest HMRC data).
Broadly, the floor at which IHT becomes an issue for many is £325k (the nil rate band), whilst for those married or in civil partnerships it’s £650k jointly with appropriate planning. This may of course seem a significant number, but it does depend on context – average house prices in Guildford are £500k+.
On death, many owners will have paid down all mortgages and therefore property, often the family home, forms a significant part of estates. Most parents want the proceeds from sales to go to their children and family. There is a residence nil-rate band that extends relief where the family home is left to the children. However, when an estate reaches £2m the residence relief is tapered away to zero by £2.35m.
Other factors at play include:
• The nil rate band is frozen at £325k until 2030, it was last increased
in 2009/10
• There is an additional residence nil-rate band of £175k, as
mentioned above
• Unused pensions will be included in your estate from 6 April 2027,
resulting in up to 40% IHT – this is a significant change currently a
pension is not considered part of your estate and can pass IHT free
• Currently IHT reliefs for shares and interests in family businesses
passed on death can mean that there is 100% relief from IHT where
specific conditions are met. The Budget introduced a new lifetime
£1m allowance from 6 April 2026 for assets qualifying for this relief,
with any excess charged to IHT at an effective 20% rate. Generally,
a family business is now caught and will need liquidity to pay tax.
There is no scope to transfer this allowance to your spouse, as with
the normal nil rate band
• Previously certain AIM shares carried relief from IHT, whereas now
that relief is also reduced to an effective rate of IHT at 20%
Combine all or some of these and the picture is one where anyone with an average house, modest investment and/or a pension profile needs to review their IHT position. Increasing house prices and long term trends in stock markets, combined with frozen reliefs and inflation, means more and more estates will come into the scope of IHT. This will be acute in the South East where there is a significant transfer of wealth between generations, compared to the national picture.
We often find that when we factor in potential inheritances that you might receive, or model what beneficiaries’ estates might look like post inheritance, there is a much more significant exposure. Shifting assets by a generation may well compound the exposure to IHT, meaning it is important to look strategically at your position now and on a look forward basis. You could make sensible provision for yourself and then consider when and how gifts are made. You should also bear in mind that tax rates and reliefs depend on individual circumstances and may change again in the future so seeking advice is important.
At Evelyn Partners we field these questions and discuss these complexities all the time. We have a wealth of experience in dealing with these issues, not only looking at the tax issues but also, as part of our wider Group, the financial planning and investment aspects. So much of the discussion is around making sure that what the family has built goes to the family, while ensuring that whenever assets are passed to future generations we have factored in IHT exposures and can deal with them.
We are local to you with our offices in Guildford. We have families, friends and business relationships all wresting with these issues alongside you. Please join the conversation, get in touch and we will see how we might help you overcome these difficult issues long before you are forced to think about them.
