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How might a Labour Government change Inheritance Tax (IHT)

In our article The future of IHT reliefs published last month we looked at how the Institute for Fiscal Studies (IFS) propose closing IHT loopholes to raise revenue for the Treasury.

Now, with talk surrounding IHT heating up in anticipation of the general election next week we take a look at reports of changes to IHT which a Labour government might make.

 

What do we know?

According to reports, there are proposals to overhaul IHT, with plans for a consultation to be launched in autumn.

What might happen regarding IHT is pure speculation at this stage but an option being looked at involving changes in the rules for the tax on agricultural land and other family businesses, could have very serious implications for SMEs.

Currently, a person can claim up to 100% relief on the inheritance of agricultural land if it is being actively farmed. Labour are reported to want to scrap this as well as business relief, which allows a person to pass on a company or shares if it is unlisted with 100% tax relief.

Plans being considered are said to include a sliding scale of options, including capping the benefit from agricultural and business relief at £500,000 for each person, rather than scrapping it altogether.

Wider changes were also said to be being considered on gifts and IHT. Currently, no IHT is due on gifts if they are made by a person who lives for more than seven years after the gifts are made.

 

Consequences for SMEs

Were agricultural and business relief to be scrapped, the impact for thousands of SMEs would be significant. An IHT liability would arise unless the business assets were transferred to a spouse or civil partner on death, which may not always be possible or the most appropriate commercial decision.

Without the reliefs, the death of a business owner could mean the death of a family-run business as executors might be forced to sell or wind up the business just to pay the IHT bill.

 

What is the timescale?

Financial reporters believe that HMRC could be instructed to prepare figures on a range of options as early as next month which would then go to the Office for Budget Responsibility (OBR). The OBR would need around 10 weeks to do the sums and share their findings with the Treasury.

There are suggestions that a budget could come in early October.

 

Get in touch

We can’t say for sure who will be the next government or what the future for IHT reliefs holds. We do know though that nothing is likely to change until at least October so it is worth considering your position now.

Get in touch with Michelle Willson at michelle.willson@cowgills.co.uk to understand the tax implications of passing on your business/wealth, or contact us via our website.

IHT
Disclaimer

The information was correct at time of publishing but may now be out of date.

Tax
Posted by Cowgills
28th June, 2024
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