With the Labour party at the wheel, Private Client lawyers are starting to worry about potential changes to Inheritance Tax (IHT) rules. The Labour party campaigned on a promise of wealth redistribution and improving life for the majority, but recent comments from the Chancellor suggest that tax hikes, including tweaks to IHT, might be in the pipeline for the next budget.
Labour’s manifesto didn’t go into specifics about IHT, but it did pledge to curb the use of offshore trusts for “dodging” IHT. This could mean big changes for how non-UK assets in excluded property trusts are taxed, possibly shifting from a domicile-based system to a residence-based one. Such a shift would mean a major revamp of the current IHT legislation. This is likely to open the door for wider reforms that might have been on Labours horizon for a while. There’s talk that various tax reliefs, including those tied to IHT, could be up for review.
Areas That Could Be Reformed
- Agricultural Property Relief (APR): Labour has said before that they don’t plan to change APR, which is a lifeline for farming families. But, this isn’t set in stone, and there are worries that even small changes could hit small farms hard, possibly leading to financial hardship or forced sales.
- Business Property Relief (BPR): BPR was set up in 1976 to help family-owned businesses continue after the death of an owner. If Labour decides to scrap or limit this relief, businesses could be forced to sell assets to cover IHT. This could shake up business stability and have knock-on effects for the economy, including job losses.
- Pension Funds: At the moment, pension funds are exempt from IHT, but there are whispers that Labour might consider making them part of the taxable estate when someone dies. This could come with exemptions for transfers to a spouse and the introduction of a new pension nil-rate band. Such a move would be a game-changer for pension planning and could pose significant financial planning challenges for those nearing retirement.
The Labour government’s plans for IHT reform are still a mystery, but it’s clear to those working in Private Client that any changes could have a big impact. It’s important to remember that these potential reforms are just that - potential. There will be a lot of discussion, consultation and debate before they become law. For those who might be affected by these changes, it’s crucial to stay informed and continue to be proactive. Keeping an eye on the news, following the discussions, and seeking advice is the best approach. Estate planning is already a complex area, and it’s always a good idea to have a professional opinion whenever changes are being considered.
Preparing for the Future
If you haven’t already, it’s a good idea to start thinking about your estate planning strategy before any changes are made to the rules. If you’re heavily reliant on specific reliefs, now might be the time to explore other options. Consider bringing forward planned gifts, finalising ongoing projects, or looking into alternative strategies. Remember, the goal is to mitigate potential tax liabilities and ensure a smooth transition of your wealth.
While the future of IHT under a Labour government remains uncertain, one thing is clear: change is coming. Whether it’s a minor tweak or a major overhaul, it’s important to be prepared. Stay informed, seek advice, and most importantly, don’t panic.
It’s never about predicting the future; it’s about being prepared for it.
The information provided in this article is provided for general information purposes only, and does not provide definitive advice. It does not amount to legal or other professional advice and so you should not rely on any information contained here as if it were such advice.
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The information published across our Knowledge Base is correct at the time of going to press.
