The Chancellor, Rachel Reeves, is considering changes to inheritance tax rules in the upcoming Budget. These changes could affect the amount of tax people pay on gifts and inheritances. An inheritance tax is a 40% tax on the property, money, and possessions of someone who has died.
It is only charged if the estate is worth more than £325,000. In the last year, the government collected a record £7.5 billion from this tax. One possible change is to the rules on gifts.
You can give away up to £3,000 each year without paying tax. If you give more than this, the recipient may have to pay tax if you die within seven years. The government might extend this to 10 years.
Another change could be to tax breaks for investments in smaller companies.
Inheritance tax changes under consideration
Right now, these investments are 100% exempt from inheritance tax if held for at least two years.
Removing this could raise over £1 billion a year. The government may also consider tax relief for family farms and businesses. Capping the amount that can be claimed could mean more tax is paid when these are passed on.
Pensions are usually exempt from inheritance tax, but there is talk of changes here, too. Making pensions taxable could bring in a lot of money for the government. Critics say these changes will hit people who have saved to leave money to their families.
They argue it will create more work for bereaved families but may not actually raise much extra tax. The Budget is due on 30 October. In addition to inheritance tax, the Chancellor is expected to change borrowing rules and cut budgets for some departments.
With a £40 billion shortfall to fix, tough decisions must be made.
