This year UK adjusts to its new government, many are wondering what the Labour Party will do regarding inheritance tax in the autumn budget.
The potential impact on inheritance tax thresholds, inheritance tax planning, and IHT allowances are areas of significant interest for many individuals and families.
Inheritance Tax: A Brief Overview
Inheritance tax has long been a contentious issue in the UK. Currently, IHT is levied at 40% on the value of an estate above the £325,000 inheritance tax threshold. This threshold can be increased to £500,000 when passing on a family home to children or grandchildren, thanks to the Residence Nil Rate Band (RNRB).
While many estates fall below this threshold and therefore avoid paying any inheritance tax, those that do are often subject to significant tax bills, leading many to seek inheritance tax advice.
The New Governments Stance on Inheritance Tax
In the past, there have been reforms suggested aimed at increasing the tax burden on the wealthiest estates, although concrete proposals have varied over time.
Under the new government, we may see policies designed to close loopholes and ensure that more wealth is captured by the tax system. This could include lowering the IHT threshold, altering the RNRB, or introducing new taxes on gifts given before death. These potential changes could have significant implications for inheritance tax planning.
Potential Changes to Watch For
Lowering the Inheritance Tax Threshold: One potential change could be a reduction in the inheritance tax threshold. By lowering the threshold from £325,000, Labour could increase the number of estates subject to inheritance tax, thereby raising additional revenue for public spending.
Reforming the Residence Nil Rate Band (RNRB): Another area ripe for reform is the RNRB. Labour might choose to revise or even eliminate this allowance, which could lead to higher inheritance tax bills for families hoping to pass on their homes to future generations.
Taxation of Lifetime Gifts: Currently, gifts given more than seven years before death are generally exempt from inheritance tax. Labour could introduce new rules to tax these gifts, particularly if they believe this is a way for the wealthy to sidestep paying their fair share of taxes.
Wealth Tax: There have also been suggestions that the government may look into introducing a broader wealth tax, which could complement changes to inheritance tax by ensuring that high-net-worth individuals pay more tax on their overall wealth.
What Does This Mean for Estate Planning?
If the government implements these changes, it could significantly impact estate tax planning strategies. For those with substantial estates, it may become more important than ever to seek professional inheritance tax advice to minimize potential tax liabilities. Some strategies that might be worth considering include:
Using Trusts: Trusts can be an effective way to manage and protect wealth for future generations while potentially reducing exposure to inheritance tax.
Lifetime Giving: While this strategy could be targeted by new Labour policies, it remains a key tool for reducing the size of an estate subject to inheritance tax.
Reviewing Wills and Estates Regularly: Given the potential for significant changes, regularly reviewing, and updating wills and estate plans will be crucial to ensure they remain effective and compliant with new laws.
How can Level help with Inheritance Tax?
While it is impossible to predict exactly what the government will do, staying informed and prepared is the best way to protect your estate. Levels Estate Expense & IHT Lending products can be used to help you to avoid delays during the administration period of an estate.
If Grant of Probate is to be achieved quickly, it can often be necessary to cover a variety of costs beforehand including:
Property repairs and maintenance
Property clearance costs
Professional fees such as probate, valuers & surveyors
If executors face a cash shortfall to cover these costs, using Levels funding solutions can often be much faster then waiting for a Grant on Credit. Obtaining a Grant on Probate is already taking anywhere from 4 to 20+ weeks to obtain, adding a Grant on Credit to this will likely extend this even further.
We specialise in helping individuals secure the financial assistance necessary during the inheritance process.
With no credit checks required and repayments made directly from estate proceeds, we simplify the process for you. Apply online today to discover how we can assist with your financial needs.
If you’d prefer to speak with a member of our team, please feel free to call us at +44 (0) 20 7205 2870.
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