Rumours are rife that the Chancellor, John Healey, might abolish Inheritance Tax in the Autumn Budget.
With pensions set to enter the IHT net in 2027, he may look to reform or even replace the existing 40% regime altogether. With 28 October looming, people undertaking inheritance tax planning in Cheshire or Oswestry will now be focusing their attention on how the government prioritises its fiscal commitments.
Around 5% of UK estates are currently liable to pay IHT, but there will be significant changes to the IHT regime from April 2027. Thereafter, unspent pension pots could be subject to 40% tax, thus forfeiting their tax-free status. Financial advisers have said that this is affecting how people plan for retirement. However, people considering cashing in their pensions have been warned that withdrawals might create new tax liabilities, which is why ‘gifting’ is repeatedly suggested as a way of maximising tax efficiency.
There is further speculation that the government could introduce a social care levy, which might be set at a flat rate of 10% and apply to all deaths, although it remains to be seen how this would square with the government’s commitment to targeting the wealthiest asset owners. Another area that might see changes is the IHT regime for property. The government has been assessing the fairness of the nil-rate band on a region-by-region basis and, with some land classed as ‘undertaxed’, may be tempted to overhaul council tax, stamp duty and capital gains tax.
If reforms are forthcoming, tax analysts have urged the government to ensure that they do not add extra layers of complexity to people’s financial arrangements.
