The Chancellor’s autumn statement ended with a flourish when Jeremy Hunt closed his speech by pulling a two per cent cut to the national insurance rate for employees out of his exchequer hat.
This will see the rate paid by employees reduce from 12% to 10%, with similar cuts announced for the self-employed, with the abolition of class 2 contributions and a one per cent reduction on class 4 contributions, which will go down to 8% from 9%.
Jeremy Hunt also confirmed a widely anticipated decision to make permanent what is known as “full expensing” for businesses. This is a 100% first-year allowance for companies to claim a deduction from taxable profits for qualifying plant and machinery assets.
And there was £500m of funding towards establishing the UK as an AI powerhouse, following the recent international summit hosted by PM Rishi Sunak on the topic, to enable further innovation centres to be developed, similar to those already established in Edinburgh and Bristol.
The Chancellor’s hour-long delivery was framed as an ‘autumn statement for growth’ and opened with forecasts from the Office for Budget Responsibility (OBR) that headline inflation will fall from its current level of 4.6% to 2.8% by the end of 2024, and to the government’s 2% target in 2025.
But the OBR has downgraded its predictions for economic growth. It now expects the economy to grow by 0.7% next year and by 1.4% in 2025, in a significant reduction from previous forecasts, which were 1.8% for 2024 and 2.5% for 2025.
And while the plans for national insurance and full expensing for business were widely circulated in advance, one topic that didn’t rate a mention, despite inspiring many column inches before the day, was inheritance tax (IHT).
It’s the elephant in the room as far as chancellors are concerned. It is brought up as a potential target for tax reform before each budget, but never gets a mention when it comes to the day. In fact, it’s probably better described as a polar bear, as the nil rate band has been frozen for so long it’s forming its own glacier!
People are fearful of the bills they will leave for their families, but the reality is that many who worry fall well below the threshold at which IHT is payable. But with IHT charged at 40 per cent it’s certainly worth doing a regular check on where you stand, as those who could be liable can minimise their liability by taking advice and planning ahead.
Last year, the Chancellor continued the IHT nil rate band freeze at £325,000 until April 2028, the residence nil-rate band at £175,000, and the residence nil-rate band taper continued to start at £2 million.
Each person can pass on a maximum of £325,000 in assets tax free when they die, including shares and property. There is an extra £175,000 allowance when the main home passes to a direct descendant. If someone is in a marriage or civil partnership, they can leave everything free of IHT to their partner, and when the second partner dies, two allowances are added together when calculating whether tax is due on the combined value of the estate.
Ways to reduce the size of an estate for inheritance tax purposes while someone is alive include making gifts, either into a trust or to individuals. A gift to an individual paid out of capital is not taxed at the time of the gift and will become wholly exempt if you live for seven years after the date of the gift. A gift into a trust is taxable at the time of the gift if its value is over the nil rate band – though the life-time rate, at 20%, is much lower – and again the value of the gift will drop out of account after seven years. Gifts can also be paid out of surplus income, where someone is able to maintain their normal lifestyle without the cash, or by making use of the automatic allowances, which include an annual exemption to allow gifting of up to £3000, together with a separate small gifts allowance of up to £250 per person.
Trusts certainly need specialist advice and even gifts can be complicated, with good record keeping essential, but often the hardest part is simply doing the sums and finding out what options might be available. For many of us, like the chancellor, dealing with inheritance tax liabilities is something we keep putting off.
More detail from the Government about the autumn statement is available here
