The Chancellor today delivered his much-anticipated Autumn Statement promising 110 measures for growth.
Those waiting for the rumoured promises of reform to Inheritance Tax (IHT) and perhaps a cut to Stamp Duty will no doubt by the 108th growth measure have begun to realise those rumours were just that. In fact, there was very little for the ‘squeezed middle’ – a favourite of previous chancellors – to cheer.
Yes, many of the measures announced – the cut in national insurance rates, the freezing of alcohol duty and the fall on inflation – will be welcomed. But the shine perhaps wears thin when on the same day waiting lists for NHS treatment topped seven million.
Inheritance tax reform has been a manifesto promise for the Conservative Party for the past 13 years. The IHT threshold of £325,000 has remained the same since 2008 whilst the annual limit on gifts has remained at £3,000 since 1981 at a time when the average house could be purchased for just £23,000.
Will reform of IHT remain just a manifesto promise, or is the Chancellor holding a strong hand in anticipation of the Spring Budget – the last great political play before the General Election?
The Chancellor will, quite understandably, want to see how this Autumn Statement lands with his Conservative Party colleagues, the markets, the media and the electorate. If poorly received, we can expect bold moves in the Spring.
So what might a Spring Budget IHT reform look like?
A cut to the headline rate is a distinct possibility. At 40% it is currently one of the highest inheritance tax rates in the world. The suggestion from Dan Neidle, a former tax lawyer at the world’s largest law firm and founder of the think tank Tax Policy Associates, of a flat 25% or even a 20% rate alongside the removal of many of the exemptions available would be sensible.
Compared to the US, where its estate tax exemption currently stands at US$12 million (and US$24 million for married couples), the UK nil rate band of £325,000 looks mean.
Increasing the nil rate band to £500,000 (and £1 million for married couples) would be relatively straightforward. It could be accompanied by the removal entirely of the residential nil rate band – which is complex and applies only in certain circumstances. It would extend the relief to unmarried and childless married couples who cannot currently benefit.
Finally, reviewing and making more generous the gifting rules, bringing them in line with the cost of living in 2023 would be welcomed.
We will have to wait and see if the Chancellor lives up to his party’s promise to reform IHT or whether it becomes yet another manifesto promise.
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The above is accurate as at 22 November 2023. The information above may be subject to change.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.
