Legal News | 29.08.24
Taxing Times Ahead: will Labour take a slice of your inheritance?
In a pivotal speech from the Downing Street garden earlier this week, Sir Kier Starmer set the scene for the Labour Party’s forthcoming Autumn Budget, suggesting that it would be ‘painful’. Naturally, this has placed Inheritance Tax and Capital Gains Tax under the spotlight. We do not have a crystal ball to help us predict the tax changes that lie ahead, but some of the changes it has been speculated Labour could announce in October are highlighted below.
Inheritance Tax (“IHT”)
IHT has long been a controversial tax, with the tax broadly being encountered when assets pass from one individual to the next (often on death).
Potential reforms might include:
- A reduction in the current nil-rate band (£325,000) which has remained static since 2009. A lower threshold would bring more estates into the IHT net.
- The residence nil-rate band, an additional allowance which often facilitates family homes passing to descendants free of IHT, could be abolished. Commentators have argued that it disproportionately benefits wealthier families and complicates the tax system.
- The standard IHT rate of 40% could be raised, especially for larger estates, as part of Labour’s broader agenda to tackle wealth inequality.
Capital Gains Tax (“CGT”)
CGT is another area ripe for reform. CGT is payable by individuals when disposing of assets, often encountered by those who are self-employed, partners in businesses, company owners, executors of estates and trustees.
Potential reforms might include:
- Aligning CGT rates with income tax rates, as the latter are significantly higher. This would lead to a substantial increase in tax for those who sell assets and realise large capital gains.
- The annual exempt amount for CGT could be reduced from its current level of £3,000 or abolished entirely, bringing more taxpayers into the remit of CGT.
What Does This Mean for You?
If any of the above speculated changes are implemented, estate planning strategies may need to be revisited.
As Labour’s proposals take shape, staying informed and proactive will be key to managing the impact of any changes. For advice on how these potential reforms might affect your financial planning, please get in touch with your usual contact at Wansbroughs or contact us at mail@wansbroughs.co.uk.
