How to prepare for the autumn budget – Private Client
Whenever there is a new change of government and potential tax announcements to follow, it is always a good idea to review your estate planning.
The autumn budget is due to be announced on the 30th October 2024.
There has been speculation that inheritance tax (and the associated reliefs) will be the main target for review.
Inheritance tax – gifting
One of the rumours is a possible change to the seven-year rule for gifting.
Every person has a yearly gifting allowance of £3,000 a year e.g. £1,000 for each three grandchildren to make a total amount of £3,000. Any unused gifting allowance from a previous tax year can be rolled over to the next tax year.
There are also gifts you can make under the small gift’s exemption up to £250 to as many people as you like each tax year. However, this cannot be combined with the annual gift exemption for the same person. You can give tax-free gifts to certain family members for weddings or civil partnerships.
Currently if you make a gift more than your available allowances to an individual and outlive that gift by 7 years (and do not reserve any benefit of it) it would pass outside of your estate without any inheritance tax implications. This is known as a Potential Exempt Transfer (PET).
If you do not survive 7 years after making the gift, the amount of tax due will depend on when you gave it, and taper relief may apply. For example, if you outlive the gift by 4 to 5 years there is still inheritance tax to pay at 24%.
It is rumoured that the government could change the number of years that you have to survive the gift, so it does not form part of your estate for inheritance tax purposes, For example,10 years rather than 7 years
When making gifts it is important to keep records such as the date, amount/type of gift and the value. Whoever deals with your estate would have to account to H M Revenue & Customs in respect of any gifts that are PETs.
If you decide to give a gift that would qualify as a PET, it is imperative that you seek advice on the effects to your estate for inheritance tax purposes.
Agricultural Property Relief and Business Relief
Agricultural Property Relief (APR) and Business Relief are important inheritance tax reliefs.
APR has been around for generations. Landowners can pass down farms with either 50% or 100% inheritance tax relief, subject to meeting certain qualifying conditions.
One of the potential proposals is to scrap APR all together, which would have a significant impact on landowners.
Business Relief (formerly business property relief, which was introduced in 1976) has the same provisions for reducing inheritance tax for business assets by either 50% or 100%. Many businesses in the United Kingdom have been passed to the next generation instead of being liquidated or sold with the Business Relief being a main factor. Similarly, it is speculated that Business Relief could be scrapped.
How to prepare when a budget is looming
The rule of thumb is that you should review your Will every 3 – 5 years. If there are any significant changes to inheritance tax on the horizon, it is a good idea to review your Will to make sure your Will complies with any new changes.
If you are a landowner that currently qualifies for APR or a business owner that would qualify for Business Relief, it is a good idea to review your estate planning and keep up to date with future budget changes so you can react quickly.
Take professional advice from one of our team
Please email info@brethertons.co.uk or phone 01295 270999 (Banbury Office), 01869 252161 (Bicester Office), or 01788 579579 (Rugby Office) to speak to a member of our team who can discuss the next steps with you.
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