Home Business Inheritance Tax changes: Chancellor Rishi Sunak walking ‘tax tightrope' to balance Budget

Inheritance Tax changes: Chancellor Rishi Sunak walking ‘tax tightrope' to balance Budget

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Chancellor Rishi Sunak will announce his long-awaited Budget on Wednesday, March 3, which will mark one year since the Chancellor first introduced a number of generous Covid relief packages to see the UK through the pandemic. However, this year’s Budget is not expected to be as generous as it was in 2020, with Britain now facing a looming fiscal blackhole due to significant lockdown borrowing. There are mounting concerns the Chancellor could take this opportunity to hike taxes in order to help recuperate some of the funds lost to the pandemic – and many are concerned the announcement tomorrow could spell major changes to Inheritance Tax.

At the moment, the standard Inheritance Tax rate is 40 percent and it is only charged on the part of the estate that is above the threshold.

Currently, there is normally no inheritance to pay if an estate is valued below the £325,000 threshold.

Similarly, there is also no Inheritance Tax to pay if someone leaves everything above the £325,000 threshold to their spouse, civil partner, a charity or a community amateur sports club.

However, the prospect of making changes to Inheritance Tax (IHT) has been floated in recent weeks, which could see significant changes introduced.

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However, the expert said it was unlikely we will see any major changes to Inheritance Tax on Budget day.

She added: “Any potential changes are likely to come as part of the tax consultations set to be released at the end of the month and these will provide indicators to the Chancellor’s thinking for later in the year when he can no longer put off any tax rises.

“It’s important to remember that the Office for Tax Simplification’s recommendations to simplify the Inheritance Tax regime haven’t gone anywhere and it could be the Chancellor revisits the document for inspiration.”

Due to the complexity of Inheritance Tax, another financial expert told Express.co.uk long-term changes to Inheritance Tax are more likely to be introduced in the future rather than immediate changes in the Budget.

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“All indications are that more drastic changes are afoot but not quite yet.

“The moral of the story is to get your house in order and make the most of ‘potentially exempt transfers’ (tax free gifting) while you still can.”

The Chancellor may consider tax changes in other areas, as Inheritance Tax does not raise as much money as the Government needs to fix the hole in its finances.

Clare Bentata, Lecturer in Accounting and Taxation at Henley Business School, said: “It’s no secret that the Chancellor needs to raise money, but Inheritance Tax only raises around £3billion a year, so it’s unlikely to be the main target for tax increases.

“However, this week’s Budget is still likely to see some changes to the Inheritance Tax system, perhaps in line with the recommendations of the 2018 Office of Tax Simplification (OTS) report.”

How could Inheritance Tax changes affect you?

Although we will have to wait until the Budget announcement to find out whether changes are brought into inheritance tax, experts told Express.co.uk it is vital to speak to a professional financial planner if changes are brought in.

Ms Griffin added: “If you’re nervous about how potential changes to Inheritance Tax could impact you then it is vital to speak to a professional financial planner.

“Making changes to your estate purely because of speculative changes to IHT is not advised, however, there may be steps you can take that would be useful no matter what IHT regime there is.

“For instance, utilising trusts are a great way to keep control over how wealth is used and distributed, particularly if you want to gift in your lifetime.”

Mark Evans, Director and Independent Financial Adviser, told Express.co.uk people shouldn’t make decisions based on “guesswork” and should use the options currently available to them.

He said: “While there may be changes coming, I would never advise people to make decisions based on guesswork.

“I would suggest people continue to do the sensible things that they would normally be doing.

“Making any rushed decisions based on guessing what may or may not be announced in the Budget may leave you regretting your decisions.

“I would always suggest that people use the allowances that are available to them, such as gifting out of normal income, giving away £3,000 per tax year, gifts to charities and payments to help with another person’s living costs, such as an elderly relative or child under 18.

“There are many ways that you can plan to mitigate IHT and I imagine there will continue to be options to do this going forwards.”



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