Possible tax reforms
22 February 2021 by James Bird
Today is a big day already in that Boris Johnson is expected to announce the path to easing lockdown restrictions and hopefully bringing a bit more normality back to life. Whilst the country is waiting for the announcements later today, it is not the only highly anticipated details we are waiting for.
The annual budget will be announced on 3rd March and Rishi Sunak is expected to talk about a lot of topics. Personally, this is the first time I have been extremely keen to find out what is being announced. There are huge amounts of speculation about the different topics it will cover, such as the Stamp Duty Land Tax holiday and whether this will be extended beyond March, increasing corporation tax, and also possibly a wealth tax.
However, another area to possibly be addressed is also Inheritance tax.
With an economy that has gone through crisis for the last year, the Government is trying to make back the money that has been spent so far and rumour has it that their eye is being cast over the assets of the wealthy when they pass away.
Currently, the IHT allowances are the Nil Rate Band (£325,000) which every person is able to benefit from when they pass away. Married couples (or civil partners) who leave their entire estates to each other on the first death can benefit from a spousal exemption (no tax on assets passing to surviving spouses/civil partners) and then the survivor can transfer the unused nil-rate band from the first spouse/civil partner to their estate.
There is also the additional Residence Nil Rate Band which allows an individual to claim up to £175,000 additional tax allowance if they meet the criteria. The criteria include: owning your property with £175,000 equity (or more) at the date of death, the property has been your main residence at some point, the property passes to direct descendants after you die. If you have less than £175,000 equity in the property then the allowance is capped equal to the equity.
Not everyone is able to benefit from this allowance due to the conditions but again it is transferable between spouses/civil partners.
All assets which do not fall within the above allowances are then subject to tax of 40%.
Although everything is speculation, it is believed that the government may look to possibly change the inheritance tax allowances and how they work. Once the budget is announced on 3rd March hopefully everything will be much clearer either on the day or the days to follow. This is certainly something we will all be keeping a close eye on and any changes made to inheritance tax allowances we will circulate by social media.