Following on from the webinar we hosted earlier this month on the basics of Inheritance Tax (IHT), we thought it would be useful to tie this in with our latest tax article ahead of the upcoming General Election.
As the general election approaches, the issue of IHT is once again at the forefront of political debate. IHT has long been a contentious topic, with parties often divided over the appropriate rates and thresholds. In the current election cycle, the implications of IHT policy proposals could have significant impacts on voters, particularly those with estates potentially subject to this tax.
Current Inheritance Tax Framework
As we covered off in our webinar, IHT in the UK is charged at 40% on estates above a certain threshold. This is known as the nil-rate band, which is set at £325,000. There is an additional residence nil-rate band for homeowners, adding up to £175,000. This can be passed on to direct descendants, raising the total threshold to £500,000 for individuals and £1 million for married couples or civil partners.
Below we look at the political parties’ stances on IHT and what their plans, if any, are to reform the tax.
Conservative Party
The Conservative Party has traditionally favored higher thresholds and lower rates. In this election, they propose to further increase the nil-rate band to alleviate the burden on middle-class families. Their argument is that many families, particularly in areas with high property prices, are unfairly caught by IHT. The Conservatives also suggest simplifying the IHT system to make it more understandable and less onerous.
Labour Party
The Labour Party, on the other hand, advocates for a more progressive tax system. They propose lowering the threshold and increasing the rate for larger estates. Labour argues that IHT should play a role in reducing wealth inequality and that the wealthiest estates should contribute more to public finances. This policy is aimed at funding various social programs and addressing economic disparities.
Liberal Democrats
The Liberal Democrats propose a comprehensive review of the entire IHT system. They suggest that while the tax should remain in place to prevent the excessive accumulation of wealth within families, it should be made fairer and less complex. They advocate for measures to close loopholes and ensure that the wealthiest individuals and families cannot easily avoid paying IHT.
Green Party
The Green Party’s stance involves a significant restructuring of the IHT system. They propose a wealth tax that would replace the current IHT, targeting all forms of wealth rather than just inheritance. This approach is designed to ensure a broader and more equitable distribution of wealth.
Reform Party
The Reform Party proposes the complete abolition of inheritance tax. They argue that IHT is a form of double taxation, as the assets being taxed have often already been subject to income tax, capital gains tax, or other forms of taxation during the lifetime of the deceased. Abolishing IHT is seen as a way to simplify the tax system and remove what they consider to be an unfair and punitive tax.
Potential Impacts on Voters
The proposed changes to IHT policies by different parties are likely to influence voter decisions. This is particularly among homeowners and those with significant assets. The debate around IHT also touches on broader themes of economic fairness, social mobility, and the role of taxation in society. As the election draws nearer, these discussions are likely to intensify, with each party trying to present their approach as the most equitable and effective.
What can you do to plan for IHT ahead of the General Election?
- Understand the Current IHT Rules
- Utilise Exemptions and Reliefs
- Make Use of Trusts or Family Investment Companies (FIC)
- Life Insurance Policies
- Review Your Will
- Consider Gifting Assets
- Invest in IHT Efficient Products
Conclusion
Planning for IHT is an essential aspect of managing your estate and ensuring that your loved ones benefit as much as possible from your legacy. By understanding the current rules, utilising available exemptions, considering trusts and life insurance, and staying informed about potential changes due to the election, you can develop a robust plan. Consulting us can provide valuable guidance tailored to your unique situation, helping you navigate the complexities of IHT and secure your family’s financial future.
Further Information
To arrange a meeting to discuss any planning or any IHT queries or matters you may have, please contact your usual NRB advisor or our tax team.
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Scott Lees – Senior Tax Manager
Mandy Schofield – Tax Manager
The advice provided here is based on the current inheritance tax (IHT) rules and tax legislation. However, the upcoming General Election may result in significant changes to tax laws and policies, including those related to IHT. Each major political party has proposed different approaches to IHT, ranging from increasing thresholds to potentially abolishing the tax altogether. NRB are impartial to any political view and would advise you to consult with a professional advisor who can provide up to date information, pending or following the General Election.
