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Did Inheritance Tax change in the Autumn Statement 2023?

Posted on 26th November 2023 in Probate & Wills, Later Life Planning

Posted by

Naomi Hoare

Senior Associate & Solicitor
Did Inheritance Tax change in the Autumn Statement 2023?

In short no. This year’s Autumn Statement was notable for what it did not say rather than what it did. Despite the rumours and speculation in the build-up to the Autumn Statement, the Chancellor did not announce a reduction or simplification of Inheritance Tax, meaning that over the coming years more and more estates will be caught in the Inheritance Tax net and the complex web of allowances and reliefs remains to be navigated if you want to maximise the benefit passing to your chosen beneficiaries on your death.

What are the Inheritance Tax rules currently?

The tax-free threshold remains set at its 2009 level of £325,000 and the rate of Inheritance Tax remains at 40%. Despite the introduction of the Residence Nil-Rate Band, the freezing of the Nil-Rate Band in 2009 has led to a significant erosion of the value of the tax-free allowance by inflation and increasing house prices. This has resulted in an ever-greater number of estates facing a liability to Inheritance Tax and, with this allowance now frozen at this level until at least 2028, the number of taxable estates paying Inheritance Tax is only set to increase further, from 4% in 2020-2021 to over 7% over the next ten years. It is anticipated that by 2032-33 one in eight people will face Inheritance Tax either on their own estate or that of their spouse or civil partner.*

How is the Nil-Rate Band applied?

Tax-reliefs, such as the Residence Nil-Rate Band and the Transferable Nil-Rate Band, which were meant to help reduce the burden of inheritance tax, have served to increase the complexity of the Inheritance Tax legislation. Neither of these allowances applies universally. The Residence Nil-Rate Band has been criticised for disadvantaging the childless. Meanwhile, the Transferable Nil-Rate Band has come under significant scrutiny for only applying to couples that are married or in a civil partnership.

For now, the position remains as it was before the Autumn Statement, meaning that if you are part of a cohabiting couple and/or childless then you are unable to take full advantage of the allowances available under the current legislation. Inevitably, this makes it even more important to consider at an early stage how Inheritance Tax may apply to your estate if you are in this position and wish to minimise it.

What does this mean for the future?

Whilst views on who should pay tax and at what rate will of course vary, the lack of reform in the Autumn Statement represents a missed opportunity to simplify how Inheritance Tax applies and introduce parity across those with and without children and those who are married or cohabiting, as well as those who do and do not own a property. For example, as highlighted by the Institute of Fiscal Studies in their recent report on reforming Inheritance Tax, removing the special treatment for residential property, by abolishing the Residence Nil Rate Band (currently set at £175,000) and extending the Nil Rate Band from £325,000 to £500,000 would retain the number of estates paying Inheritance Tax at 4%, whilst also making the tax system simpler and fairer. However, there are currently no signs of steps being taken in this direction so the status quo remains for now.

How can Tozers help?

Tozers remains committed to providing high-quality advice on the application of Inheritance Tax to our clients’ estates and would be delighted to assist you if you want to discuss any of the points raised above or if you need any help with Inheritance Tax planning. Contact our legal experts today.

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