Rachel Reeves is reportedly set to overhaul Inheritance Tax in the upcoming Autumn Budget, with numerous outlets indicating significant adjustments. Inheritance Tax, usually owed after someone’s death, stands at a 40% rate and targets the value of the deceased’s estate, including property, possessions, and money. However, thanks to current allowances, less than 5% of estates actually incur Inheritance Tax charges.
Yet, several sources hint at potential reforms to some of the present exemptions. The Telegraph has reported that the Treasury might modify a rule that permits tax-free inheritance for gifts given more than seven years before passing away. Precise details about the changes expected to be declared on October 30 and who may be affected remain unclear. When approached by the BBC, a Treasury spokesperson stated: “We do not comment on speculation around tax changes outside of fiscal events.”
As it stands, anything left to a spouse or civil partner, excluding those merely cohabiting, is Inheritance Tax-exempt. For others, Inheritance Tax comes into play if the estate’s value exceeds £375,000, reports the Mirror. Some individuals have the ability to leave more than this to their heirs. An additional allowance of £175,000 can be obtained if you bequeath your home to your children – including adopted, foster or step-children – or grandchildren. This means that your Inheritance Tax threshold could potentially rise to £500,000. Any unused allowance can also be transferred to your spouse.
Therefore, by combining the standard £325,000 Inheritance Tax threshold and the property limit of £175,000 for grandchildren, it’s feasible for couples to have a combined tax-free and property limit of £1million upon their death. Rachel Reeves is reportedly aiming to generate up to £40billion from tax increases and spending reductions in the Autumn Budget as the Government strives to prevent a return to austerity. Changes to Capital Gains Tax are also rumoured to be under consideration.
Capital Gains Tax is the tax imposed on the profit gained from the sale of an asset that has appreciated in value. Most valuables and personal possessions, excluding your car, are subject to Capital Gains Tax. It can also be applied to any property that isn’t your primary residence, your main home if it’s been rented out or used for business, or investments held outside an ISA or pension above the tax-free limit. The standard rate is 18% on residential property and 10% on other assets, while the higher rate is 28% on residential property and 20% on other assets.