Changes to inheritance tax may be coming in Wednesday’s Budget announcement (Picture: Getty Images)
Sir Keir Starmer’s Labour government is preparing to unveil its first Budget on Wednesday, and changes to inheritance tax are expected to play a role.
The tax doesn’t raise much for the Treasury – around £7.5 billion most recently, or 0.3% of national income – and Chancellor Rachel Reeves may be tempted to push that a little higher.
So what is inheritance tax, and how likely are you to be impacted by any changes?
The good news is you probably won’t be affected. The levy is paid on only around 4% of estates, belonging to the very wealthiest people in the country.
Thresholds are relatively high and there are a host of rules and limitations that people can take advantage of. Reeves is unlikely to change those very dramatically.
Here’s everything you need to know about inheritance tax.
How much is inheritance tax?
The standard rate of inheritance tax is 40%, which is paid on estates with a value higher than £325,000. It’s only paid on the part of the estate above that threshold.
But as with everything else to do with this tax, there are several extra notes that complicate the picture.
When do you have to pay taxes on inheritance?
Inheritance tax is not paid at all on anything you leave to your spouse or civil partner. That doesn’t apply if someone is a long-term partner – it’s one of the main legal perks of marriage/civil partnership.
It also isn’t paid on anything left to a charity or a community amateur sports club.
And if you pass your home on to your kids or grandkids, that raises the total threshold to £500,000 rather than £325,000.
Chancellor Rachel Reeves says she needs to make tough decisions to ‘fix the foundations’ in her Budget (Picture: Reuters)
On top of that, you can pass on any unused inheritance tax allowance to your spouse or civil partner.
So if a husband and wife have £1 million in assets between them and the husband leaves everything to his spouse – using his full £500,000 allowance – then she will be able to leave that £1 million estate to the kids tax-free, as his allowance will be added to her own.
Perhaps you can see already why so few estates end up affected by this tax.
There’s more – if you give at least 10% of your estate to charity, then the part that is subject to inheritance tax gets a reduced rate of 36%.
What is the £60k inheritance tax loophole?
Reeves is unlikely to change much about the fundamental aspects of inheritance tax outlined above, there are other things she might tweak.
One is a particular rule over gifts. Inheritance tax can be charged on money you give away – as long as it’s a sufficiently large amount – if you die within seven years.
This is intended to stop people dodging the tax by just giving away everything they would have put in their will while they’re still alive.
But the ‘gifts …read more
Source:: Metro
