What does 2024 have in store for Inheritance Tax? IFA Magazine

There have been calls for a cut in the IHT rate, especially in the lead up to the 2023 Autumn Statement. Whilst there were no changes announced to IHT in the Statement, there are arguments to be made in favour of scrapping it, with the fundamental view that it is unfair to tax income throughout an individual’s lifetime, and then again after they die.

However, Katharine notes that the UK economy is in a fragile state, with government gross debt at 100.5% of gross domestic product (GDP). IHT receipts are worth £8bn to the Treasury and if IHT were to be scrapped, or receive a rate cut, the shortfall would have to be made up elsewhere. Katharine says: “This poses another significant challenge to the argument to cut IHT, because the Government currently has few options to achieve this.”

To read more on Katharine’s view of the Government’s options and the future of IHT reform, download the latest issue of the IFA Magazine here.

For more on efficient tax planning of your personal affairs, get in touch with Katharine or a member of our Private Client team.

Is scrapping Inheritance Tax right for the economy? – FT Adviser

Can IHT reform be supported?

IHT in the UK is perceived by some as overly punitive. While only a small percentage of deaths incur IHT, public sentiment views it as particularly unjust, with some advocating for its complete abolition.

However, Katharine questions whether now is the time for significant tax reform. With the UK government’s debt exceeding 100% of GDP, there are arguments to be had against any unfunded tax cuts. IHT currently generates over £8 billion annually for the Treasury, and its elimination would mean finding alternative revenue sources.

Increases to Income Tax are not seen as viable due to already high taxation levels, with the Office for Budget Responsibility (OBR) projecting a collection of £268 billion next year. As thresholds freeze, more taxpayers find themselves in higher tax bands, compounding the issue.

When it come to Capital Gains Tax (CGT), while it has been suggested that the rates should align with Income Tax, increasing CGT carries its own risks. Higher rates could discourage the sale of assets, particularly among older taxpayers who may opt to hold onto their assets instead.

What will happen now?

Despite vocal calls for IHT reform, the Treasury has not committed to any definitive plans, with only tentative suggestions of reducing and eventually abolishing IHT when financially viable. The Chancellor has underscored the lack of leeway for tax cuts. While the debate around IHT continues, the Government has not yet found a path to its reform or abolition, and the current economic climate suggests that substantial changes to the tax system might be more disruptive than beneficial.

You can read Katharine’s comments in full via FT Adviser here.

Autumn Budget 2023 analysis

The Autumn Budget will be published on 22 November 2023 and any news about IHT reform will be announced then, if it happens. Katharine, our Private Client team and our wider tax teams will analyse each announcement made to determine what these changes mean for you. To hear our latest insights following the Budget, join our mailing list to be the first to receive news as it happens.

Pensions – Inheritance Tax efficient bequests

If you already have an annuity or a final salary pension, there is not a pot of money to pass on, but depending on the rules of the specific scheme, it may transfer to your surviving spouse to pay a pension for the remainder of their life.

If you have a private pension, for example a Self-Invested Personal Pension (SIPP) or a stakeholder or workplace pension, this could generally be passed on to your beneficiaries tax free. If you are under 75 when you die, your beneficiaries can usually draw from the fund without paying Income Tax. If you are over 75 when you pass away, your beneficiaries will be taxed on their pension at their marginal rate of tax. There are proposals to align the Income Tax treatment of inherited pensions, irrespective of the age at death. From 2024, it is proposed that all beneficiaries will suffer Income Tax at their marginal rate.

Pension funds can usually be a significant and valuable part of someone’s estate. As part of IHT planning, some people may find it beneficial to spend their non-pension assets first before dipping into their pensions. To discuss your pensions and IHT, please get in touch.

This article is taken from our Inheritance Tax and Probate Briefing 2023. Read more here.

Probate Office delays

How long is the probate office currently taking?

Pre-COVID, it was possible to follow up with HM Courts & Tribunals Service (HMCTS) if probate had not been granted after 10 days. However, there is now a 16-week timeframe in place before it is possible to chase the registry for an update with an application.

These delays can have significant consequences for the distribution of a deceased person’s estate.

It can lead to the following:

  • Prolonged waiting periods for beneficiaries to receive their inheritance
  • Stress, emotional anguish, frustration and financial hardship on the waiting families
  • An increase in legal and administrative costs, as the process takes longer to finalise
  • Assets and investments tied to the estate may be affected by market fluctuations

All of the above can ultimately impact the value of any inheritance and the overall value of the estate. We recognise that the Probate Office’s delays cause uncertainty and frustration for our clients. We do everything possible to ensure the smooth passage of probate applications. Please contact Sharron Edwards, Senior Manager, or a member of the Private Client team if you wish to discuss this issue further.

What needs to be valued for probate and Inheritance Tax reporting?

What assets are subject to probate?

As a guide the most common assets for probate are:

  • Property
  • Bank accounts
  • Personal possessions
  • Business assets
  • Stocks and shares
  • Cars
  • Jewellery

Any debts of the deceased also need to be established and will be deducted from the value of the estate.

Any lifetime gifts (Potentially Exempt Transfers, or PETs) made by the deceased in the seven years before death, must also be identified and recorded. Any gifts made more than seven years before the date of death will be exempt. The value of gifts made more than three years, but less than seven years before death, will be subject to IHT at a reduced rate.

Assets must be valued at their open market value. This is the price the asset might reasonably fetch if it was sold on the open market at the time of death.

Our probate service

Haysmacintyre LLP is licensed by the Institute of Chartered Accountants in England & Wales to carry out the reserved legal activity of non-contentious probate in England and Wales, and can therefore deal with both the probate application and IHT reporting.

For further advice and support with your probate application and asset valuation, please contact Mark Pattenden, Partner.

Probate: who should apply?

Who can request probate also depends on if there is a will in place or not. If a will has been made, one or more executors will have been named, then it is their responsibility to apply for probate. An executor can choose to forgo their right to act as an executor if they wish. This can be done in two ways:

  • The first is to hold ‘power reserved’ which allows other executors to carry out the course of probate but allows the executor to reserve the right to re-join the process later if necessary.
  • The second is where an executor may opt to give up their right to apply for probate entirely, known as ‘renunciation’, if they do not wish to be involved or are unable to.

If there is a will, the most ‘entitled’ person can apply for probate. Usually, this is the closest living relative of the deceased, namely the surviving spouse or the civil partner. HMRC has inheritance calculator to help assess who may be the closest relative, but legal advice should be sought to avoid and resolve any disputes which may arise. In the case of a will not being made, this is called a grant of letters of administration.

Once either a grant of probate or grant of letters of administration has been given, the executors are now able to deal with the deceased’s estate, in accordance with their will or the law.

For further advice and support with your probate application, please contact Mark Pattenden, Partner.

Private Client Briefing – Inheritance Tax and Probate 2023

The Nil Rate Band (or threshold) for IHT has been frozen at £325,000 since 2009, and there are currently no plans to increase it until at least 2028. Between 2009 and 2023, the average UK house price increased by more than 80%.

None of us likes to dwell on morbid thoughts, but there’s never been a greater need to plan for IHT, as the IHT receipts for the Treasury continue to increase, and more and more families are caught by the IHT net. This IHT and probate focused briefing highlights planning principles and opportunities for you to consider. This is of course an interesting time for IHT, with recent press reports suggesting that the Government may reduce the rate in the March 2024 Budget and include the plan to abolish IHT at some future date in its 2024 election manifesto. There is no certainty at this time: we recommend that you continue to plan for IHT but retain some flexibility until we can be sure any changes and any ‘replacement’ taxes.

Our IHT and probate specialists are available to assist with your estate planning, provide you with bespoke solutions to minimise your potential IHT exposure, and to ease the administrative burdens on death by dealing with the grant of probate. Please do not hesitate to contact me or any of the Private Client team, if we can assist you in any way.

Download the Private Client Inheritance Tax Probate Briefing below.

Your options for Inheritance Tax planning

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  •  November 7, 2023
     10:00 am - 11:00 am

With a tax rate of 40% on assets passed on after death, proactive planning enables you to pass on more of your wealth to the next generation. Join this webinar to understand how to optimise your estate and minimise your tax liabilities. The webinar will be led by members of our Private Client team and (more…)

Inheritance Tax: Business Property Relief

What is Business Property Relief?

A relief, known as Business Property Relief (BPR), reduces the value of the ‘relevant business property’ in the case of an IHT chargeable event, such as death, or the lifetime transfer of assets to a trust. Relevant business property includes:

  1. A sole trade business or a partnership share
  2. Shares in an unlisted trading company
  3. Shares in a quoted trading company where the owner has voting control of more than 50%
  4. Land, buildings, or plant and machinery owned by an individual and used by a partnership or company the individual controls.

The rate of relief that will be given is 100% for assets within classes 1 and 2 above, whereas assets within classes 3 and 4 will receive relief at 50%. Shares on the Alternative Investment Market (AIM) are treated as unlisted shares for BPR purposes, and relief is therefore available at 100%.

BPR conditions

What makes the relief so beneficial is that there is no monetary limit. Whilst BPR can be a hugely valuable relief for business owners, it can also be very easy to trip up on, due to the conditions that need to be met to qualify for the relief.

The individual must have owned the asset for at least two years at the point of the chargeable event and it must not be subject to a binding contract for sale. BPR will be restricted if the company holds ‘excepted assets’. Excepted assets are assets that are neither used for business purposes, in the two years preceding the transfer, nor required for future use in the business. An example of this would be large cash deposits which are not required for future use in the trade.

BPR will not be available if the business activity consists wholly or mainly of dealing in securities, stocks or shares, land or buildings, or making or holding investments. HMRC will look at all aspects of the business to determine if it is trading or investment, such as the business’ main activities, the assets and the sources of income. It is therefore critical for a business owner to ensure that the activities of the business comply with the conditions for relief.

HMRC will generally class ‘land-based’ businesses as investment businesses. One exception is property development businesses. The activity of dealing in land is not currently treated as relevant business property. However, a property development business constructing houses or other properties for resale should qualify for BPR.

BPR and trusts

BPR is also effective when settling relevant business property into a trust. The transfer into a trust will benefit from 100% relief (unless it is shares in a quoted trading company which carries 50% relief) and there would be no IHT charge on the way in. Similarly, the relief applies on distributions of business assets from the trust to beneficiaries once they have been held in the trust for at least two years. What makes transferring relevant business property into a trust more tax efficient, is that the donor can elect to claim gift holdover relief, which prevents the donor from suffering an immediate CGT charge on the deemed disposal of shares. The trust inherits the donor’s book cost of the shares and is then chargeable to CGT, when the trust eventually disposes of the assets. Settling business interests in a trust can be helpful with estate planning to pass on the benefit of the assets without relinquishing control.

There are many IHT planning opportunities available which involve business interests, and the potential benefits should not be overlooked. Please get in contact with the Private Client & Trusts team, or your usual haysmacintyre contact, for more information on how we can help.


Estate planning and Inheritance Tax

Things to consider for estate planning

We have set out some key points to consider when planning your estate:

  1. Have you written a will?
  2. Who will carry out your instructions?
  3. Do you want a funeral, cremation or memorial service?
  4. Who will look after your children (or your pets)?
  5. Are you aware that there is no such thing as a common law spouse for Inheritance Tax purposes?
  6. Marriage invalidates a will, but what about divorce?
  7. Are you regularly reviewing your will for any changes?

Writing your will

The best way to make sure your assets end up where you want them, is to write a will. While it is possible to write one yourself (and arrange for two independent people to witness your signature), we would always recommend using a solicitor, to ensure it is legally valid, and achieves your wishes.

Your executors are responsible for collecting your assets, paying your debts, and distributing your estate to your beneficiaries. Choose people who you trust will carry out your instructions. One of their first acts is to arrange your funeral or cremation, so including your wishes in your will is very important.

If you have young children, and both you and your spouse pass away at the same time, you should include instructions in your will for who will act as their guardian. The same could apply to any beloved pets.

What happens if there is no will?

Passing away without a will is called dying ‘intestate’. The law provides for the distribution of assets, with strict rules on who gets how much. Remember, there is no such thing as a common law spouse for inheritance rules, so an unmarried partner may not receive anything if you die without leaving a will.  It is therefore arguably more important for unmarried couples to write a will.

Once you have written your will, it is important to review it regularly to make sure it is still appropriate to your circumstances. Your will becomes invalid if you subsequently get married – this is therefore a good opportunity to review your plans. Getting divorced does not invalidate a will, but the divorced spouse is removed from benefitting from the will and from their position as an executor, if appropriate.

If you would like to us to review your will or to discuss any aspect of planning your estate, please contact Mark Pattenden, Partner.

Get in touch