Inheritance Tax is the latest property tax target for Chancellor Rachel Reeves in next week’s Budget according to media speculation.
It appears that Reeves wants to reduce or cut completely the various exemptions to IHT.
Sarah Coles of business consultancy Hargreaves Lansdown says: “The figures show £15.5 billion was transferred tax-free to spouses and civil partners during 2020/21, which makes it the largest IHT tax break on the books.
“If this was changed, instead of the surviving partner being able to give away up to £1m free of inheritance tax, they might be limited to £500,000. Given that the average house in London is now worth £531,212, it could push the average Londoner into the realms of tax.
“The hope is that because this is such an essential exemption, the government will be wary of making a change that causes potential hardship to so many, and could lead to people being forced to sell their home to pay an inheritance tax bill.”
The second biggest exemption is business property release, saving £2.9 billion and used by 4,170 estates.
This protects the assets in family businesses, allowing them to be passed on free of inheritance tax.
Another major exemption is agricultural property relief, which protected £1.6 billion in the 2021 to 2022 tax year, and was claimed by 1,730 estates.
It applies to all sorts of assets on family farms, enabling them to be passed down the generations.
The combined value of agricultural and business property relief was £4.4 billion – up 5% in a year. The government could choose to look at the level of either relief in its drive to raise more money.
Hargreaves Lansdown says there have been discussions as to whether business property relief could become less generous. Next week’s Budget might squeeze business property relief by limiting the assets it applies to, increasing the minimum holding period (possibly from two years to five years), capping the maximum or reducing the level of relief.
The consultancy says: “The government might also apply agricultural relief to fewer assets and under more limited circumstances. However, a proper review of this relief and how it operates would be a sensible first step, to ensure changes wouldn’t cause irreversible damage to family farms.”
At the moment, pensions can be left free of inheritance tax, but if this exemption was scrapped entirely or restricted it would mean it’s treated similarly to other savings and investments for retirement, including ISAs.
This article is taken from Landlord Today