The UK Treasury is reportedly weighing significant reforms to inheritance tax (IHT) ahead of the Autumn Budget, sparking debate among policymakers and taxpayers alike. With mounting pressure to ease the burden on families while maintaining revenue streams, Chancellor Jeremy Hunt faces a delicate balancing act.
The Current Inheritance Tax Landscape
Currently, IHT applies at 40% on estates valued over £325,000, with an additional £175,000 allowance for primary residences passed to direct descendants. This means married couples can effectively shield up to £1 million from taxation. However, frozen thresholds and rising property prices have dragged more families into the IHT net in recent years.
Potential Reforms on the Table
Insiders suggest several options are under consideration:
- Abolishing IHT entirely as part of Conservative tax-cutting pledges
- Raising the nil-rate band to £500,000 for individuals
- Reducing the headline rate from 40% to 20% or 30%
- Closing agricultural and business relief loopholes
The Treasury remains tight-lipped about specific plans, but experts warn any significant cuts would require compensatory measures elsewhere.
Political and Economic Implications
With a general election looming, IHT reform presents both opportunities and risks for the government. While cutting the unpopular tax could appeal to core Conservative voters, critics argue it would primarily benefit wealthier households at a time when public finances remain strained.
Economists estimate abolishing IHT could cost the Treasury £7 billion annually - equivalent to 2p on income tax rates. This has led some to speculate that any reductions might be phased in gradually rather than implemented immediately.
What This Means for UK Families
For those with estates approaching current thresholds, the uncertainty creates challenges for financial planning:
- Should families delay wealth transfers in hope of lower rates?
- How might changes affect existing trusts and gifting strategies?
- Will property-rich but cash-poor families see relief?
Financial advisors recommend reviewing wills and estate plans once the Autumn Budget details emerge on November 22nd.
The coming weeks will prove crucial as Treasury officials finalise proposals that could reshape intergenerational wealth transfer in the UK for years to come.
