The IHT landscape set to change as the Treasury reports record breaking receipts

The Treasury on track to see record breaking IHT receipts in 2023/24

Last month we wrote about the increasing receipts from IHT and the benefits of Business Relief. A month on, the Treasury revealed that receipts for April to December 2023 were a staggering £5.7 billion, which is £0.4 billion up on the same period in 2023. Indeed, at the current rate of increase, 7.5%, they are on track to take £7.6 billion for the 23/24 tax year, a huge jump from £7.1 billion in the previous tax year.

An ongoing problem?

As well covered by us at Forrester Boyd  Wealth Management, and in this excellent piece from ‘Today’s Wills and Probate,’ given the current rise in property and investments, although modest, combined with the IHT Nil rate band ongoing freeze, more and more estates are now paying the unpopular tax. All things remaining equal more and more households, not traditionally considered likely to be sucked into the realms of IHT, will be, which of course, means more clients will need combined legal and financial estate planning advice.

Political appetite for change

There seems little doubt, based on the views of expert commentators and Jeremy Hunt’s own agenda, that the Spring Budget may offer some short-term hope. The Conservatives, needing to court popularity ahead of an election this year, as they trail Labour in the polls, will look to potential vote winning strategies. The right-wing side of his party are hoping for a headline grabbing rate cut, perhaps to as low as 20%, rather than an increasing of the Nil Rate Band threshold. It is interesting to note, that had the NRB increased in line with inflation since the 2009 freeze, it would currently sit at around £490k. In truth of course, any short-term change to IHT, may well be immediately reversed should Labour be victorious.

Short-term sugar rush or long-term thinking?

As this fabulous article in The Guardian points out, the short-term sugar rush that an IHT cut may offer, whilst appealing as a vote winner, is probably not the correct approach for longer term reform. As Labour will undoubtedly point out, the rate cut will largely benefit the truly wealthy, and mainly those in London and the Southeast.

The Guardian piece suggests that reforming IHT by closing loopholes. This would fund potential changes for a lower headline rate of a higher NRB. One of the biggest legitimate loopholes is the unlimited amount of farmland, private businesses and AIM shares that can be passed on entirely tax free.

The HMRC’s own figures reveal that the above tax loopholes are the reason why the average rate of IHT paid by estates worth more than £10m was as low as 17%, lower than the rate paid by estates worth £1.5-£2m, amazingly just half the headline rate of 40%.

Business Relief under threat?

Last month we wrote on this subject and on why investment vehicles utilising AIM shares are an excellent estate planning option because the offer Business Relief exemptions. The Guardian article reveals however that, “Four in every five pounds of the relief – totalling more than £1bn – applies to AIM shares, where the deceased is just an arm’s length investor.”

This being the case, particularly give the likelihood of a new left of centre government, there would seem to be more chance of reform or even closing of the access to business relief via estate planning investments using AIM shares.

Time to talk to us now?

Whilst as financial planners at Forrester Boyd Wealth Management, we cannot predict the future of the economy or indeed legislation, we do need to consider all eventualities when assisting clients. What we do know is that investments we can access now under current legislation can and will assist clients decreasing future IHT liabilities and to pass on more wealth to their loved ones. If you wish to discuss these tools, perhaps before they are lessened in attractiveness or perhaps disappear, then please contact us.