Chancellor Rachel Reeves announces inheritance tax changes

by / ⠀News / November 1, 2024
Chancellor Rachel Reeves announces inheritance tax changes

The UK’s Chancellor of the Exchequer, Rachel Reeves, has announced plans to extend the current freeze on the inheritance tax threshold until 2030. This decision is part of the government’s latest budget measures. The inheritance tax threshold, which determines the point at which inheritance tax becomes payable, will not rise with inflation.

This could potentially bring more estates into the tax net over time as property and asset values increase.

In addition to the threshold freeze extension, the government has unveiled plans to close a loophole in inheritance tax that could significantly impact the estates of wealthy pensioners. Currently, certain pension schemes allow individuals to pass on their pension pots to heirs without incurring inheritance tax.

Under the proposed changes, pension assets above the £1 million threshold would be subject to inheritance tax at a rate of 40%. The government argues that this adjustment will ensure high-value estates contribute their fair share of taxes and address issues of inequality in the tax system. Critics of the current system say the loophole allows for significant tax avoidance and undermines the principle of fairness in taxation.

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Chancellor extends inheritance tax freeze

Financial experts predict that the proposed changes will prompt wealthy individuals to reassess their estate planning strategies. According to forecasts by the Office for Budget Responsibility (OBR), these changes are expected to lead to an 85% rise in inheritance tax receipts to the Treasury.

The number of deaths triggering inheritance tax charges is projected to double from approximately 33,300 in the fiscal year 2023-24 to 66,600 by 2030. The total amount of inheritance tax paid is predicted to rise from £7.5 billion to £13.9 billion over the same period, with £2.3 billion coming from the new reforms alone. The increase is primarily due to allowance thresholds being frozen for many years while house prices and the value of other assets have surged.

Another significant change is the inclusion of inherited pensions in the inheritance tax bracket. From April 6, 2027, almost all pension wealth will be included in the deceased’s estate. The government estimates that 10,500 additional estates would be liable for an inheritance tax charge in the first year of implementation, with around 38,500 estates likely to pay more.

The proposed closure of the inheritance tax loophole and the extension of the threshold freeze are part of a broader effort by the government to modernize the tax code and address issues of tax avoidance and evasion. The announcement has sparked a debate over the implications for future pensioners and the fairness of the tax system.

About The Author

Kimberly Zhang

Editor in Chief of Under30CEO. I have a passion for helping educate the next generation of leaders. MBA from Graduate School of Business. Former tech startup founder. Regular speaker at entrepreneurship conferences and events.

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