Once again, the subject of inheritance tax has become a hot topic, given the pending Autumn Statement on 30th October 2024. With current rates as they stand, figures published by HMRC confirm that receipts for April 2024 to July 2024 are £2.8 billion, which is £0.2 billion higher than the same period last year.
We won’t know what decision will be made on inheritance tax until the Autumn Budget takes place. However it is almost certain that inheritance tax will be one of the taxes that will be subject to some form of increase.
Inheritance Tax was first introduced in 1894 when the government introduced Estate Duty. This was a tax on the capital value of land. It replaced several different forms of inheritance taxes that went back as far as 1694. In 1975, Estate Duty was replaced by Capital Transfer Tax and this was subsequently “rebranded” to Inheritance Tax in 1986.
The current position with inheritance tax is that each individual has a nil rate band allowance of £325,000 which can be left free of inheritance tax on death. In addition to this tax free allowance, an estate may qualify for the residence nil rate band allowance. This is a further tax free allowance of £175,000 that was introduced in April 2017. Anything over and above the nil rate band (and any available residence nil rate band) which doesn’t qualify for one of the current exemptions is subject to inheritance tax at a rate of forty per cent.
The possibilities for the alternation of inheritance tax by the government would be as follows:
In considering these possibilities, the most likely would be the first one, to raise the rate of inheritance tax from forty per cent. This would be simplest in terms of putting into place. Lowering the nil rate band is more unlikely as this has not increased since the 2009/2010 tax year. It has never been decreased and therefore this would be more unlikely. Attempting to impose a “double death tax” would be hugely punitive on estates and it is difficult to see how this could be worked. The only other changes that may be possible, are in points 4 and 5 above.
Whatever the announcement on inheritance tax in the Autumn statement brings, it is likely to be a further blow to an already very unpopular tax.
